VMI can provide significant savings for the supply chain over RMI in almost all scenarios capturing nearly all benefits. VMI can be particularly beneficial for products with high demand variance or high outsourcing cost. In the last decade, many companies have changed their supply chain structure from retailer managed inventory (RMI) to vendor managed inventory (VMI) in which the vendor decides the quantity to be stocked at the retail location(s).
In a true VMI setting, the supplier has the freedom to plan its own production and decide the replenishment schedules as long as the agreed customer service levels are met. VMI is often implemented with minimum and maximum levels for inventory and the vendor is responsible in maintaining those. VMI shifts responsibility in decision making of the replenishment schedule and inventory management from the customer to the supplier.