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What is Supplier Managed Inventory? – Definition

What is Supplier Managed Inventory? – Definition

In today’s world of fast-paced business, it is essential for companies to have a reliable supply chain. One way companies are able to ensure the reliability of their supply chain is through supplier managed inventory (SMI). SMI is a process that involves communication between buyers and suppliers to ensure that materials needed for production and shipping are always available. By using SMI, companies can save both time and money while also reducing the risk of production delays. In this blog post, we’ll be exploring what supplier managed inventory is and how it works in greater detail.

What is Supplier Managed Inventory?

In a nutshell, supplier managed inventory (SMI) is an inventory management system in which the supplier is responsible for managing and replenishing the inventory of its customer. SMI is also sometimes referred to as vendor managed inventory (VMI).

Under an SMI arrangement, the customer provides the supplier with information on anticipated demand and desired levels of inventory. The supplier then uses this information to manage the production process and ensure that sufficient inventory is available to meet customer demand.

The key benefits of SMI include improved communication between the customer and supplier, reduced inventory levels, and improved production planning. In addition, SMI can help to build a closer relationship between the customer and supplier, as well as improve overall supply chain efficiency.

How does Supplier Managed Inventory work?

Supplier Managed Inventory (SMI) is an inventory management system in which the supplier of a product or service is responsible for maintaining sufficient inventory levels to meet customer demand. In other words, the supplier manages the customer’s inventory for them.

SMI is often used in situations where there is a high degree of uncertainty regarding future customer demand, such as when a product is new to the market or its sales are highly seasonal. In these cases, it can be difficult for the customer to accurately forecast their future needs and maintain adequate inventory levels on their own.

Under an SMI arrangement, the supplier uses their knowledge of past demand patterns to maintain appropriate stock levels at the customer’s location. This can help to ensure that the customer never runs out of a product and experiences downtime due to lack of inventory.

In some cases, the supplier may also be responsible for managing inventory at multiple locations for the same customer. This can help to further streamline operations and reduce costs by minimizing excess inventory and transportation costs associated with moving goods around unnecessarily.

What are the benefits of Supplier Managed Inventory?

The benefits of Supplier Managed Inventory are many and varied, but can be summarized as follows:

1. Reduced inventory costs: By having the supplier manage your inventory, you can free up valuable storage space and reduce the cost of inventory management.

2. Increased flexibility: Supplier Managed Inventory can give you the flexibility to respond quickly to changes in customer demand.

3. Improved customer service: With Supplier Managed Inventory, your customers can receive their orders faster and with less chance of errors or shortages.

4. Enhanced supplier relationships: Working closely with your suppliers through a Supplier Managed Inventory arrangement can help to build strong, long-lasting relationships.

Are there any disadvantages to using Supplier Managed Inventory?

Yes, there are some disadvantages to using supplier managed inventory. One is that it can put a strain on the relationship between the supplier and the customer if there are any problems with the inventory levels or delivery. Another disadvantage is that it can be difficult to change suppliers if you are using supplier managed inventory, since the inventory is managed by the supplier. Finally, supplier managed inventory can be more expensive than other methods of inventory management.

How can you get started with Supplier Managed Inventory?

The first step is to talk to your suppliers about the possibility of implementing an inventory management system. Many times, your suppliers will be able to offer you a discount for managing your inventory levels. Once you have decided to implement a supplier managed inventory system, you will need to set up some basic infrastructure, including a computer system and software to track inventory levels. You will also need to train your staff on how to use the system.


Supplier Managed Inventory (SMI) is a powerful inventory management strategy that can help businesses better control their supply chain and optimize their operations. By establishing long-term relationships with suppliers, companies are able to access real-time stock data and keep track of the changing demand for products. This allows them to maintain high levels of customer satisfaction while also reducing costs associated with managing large inventories. SMI provides an effective solution for businesses looking to take control of their supply chain and increase efficiency in the process.

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