Describing Supplier Managed Inventory (SMI)


After completing this lesson, you will be able to:

  • Define Supplier Managed Inventory (SMI)
  • Explain the business case for Supplier Managed Inventory (SMI)

Supplier Management Inventory Overview

What is Supplier Managed Inventory?

Supplier Managed Inventory (SMI) is a business model where the supplier of a product takes responsibility for maintaining an agreed inventory of material. The product is usually stored at the Buyer's location for easy consumption.

SMI provides foundational capability for Supply Chain Collaboration between Buyers and Suppliers by sharing inventory, demand information and replenishment of inventory based on established Min/Max levels


In some industries SMI is referred to as Vendor Managed Inventory or VMI. Both SMI & VMI are the same and referred to interchangeably.

Business Case for Supplier Managed Inventory


  • Improve supplier fill rates, decrease in stock-outs and optimize inventory levels

  • Reduce planning and ordering costs by shifting the responsibility to the supplier

  • Improve service levels by having the product at the right time and location

  • Increased focus on the supplier to provide great service


  • Visibility of the buyer’s demand and inventory data enables more accurate forecasting and planning

  • Reduce buyer ordering errors resulting in a decrease in potential returns

  • Visibility of stock levels enables proper prioritization of orders.

Dual Benefits

  • Using computer to computer communications results in fewer data entry errors and improved speed to processing an order.
  • Both parties are interested in giving better service to the end customer. Having the correct item in stock when the end customer needs it, benefits all parties involved.
  • A true partnership is formed between the buyer and the supplier. They work closer together and strengthen their ties.
  • Stabilizing the timing of order generation based on a predefined basis improves supply reliability.

Supplier Managed Inventory Business Benefits

Supplier Managed Inventory Data Sharing Model

Buyers can share the demand data with suppliers in the following 2 ways:

Min / Max level:

The Buyer shares the minimum and maximum quantity for the supplier to replenish against. The Supplier will plan the shipment to make sure the buyer inventory stays within minimum and maximum levels.

Days of Supply:

Some buyers use days of supply instead of stock quantities in supplier-managed inventory. This feature calculates the Minimum inventory and Maximum inventory key figures based on the minimum and maximum days of supply. Inventory quantities calculated from days-of-supply quantities are rounded to the nearest whole number.

Use Cases

Industry - Automobile/Pharma/Food and Beverage

Component supplier:

Component suppliers set up production close to the manufacturer to shorten the lead time for replenishments based on agreed minimum and maximum levels.

Pharmaceutical Products:

In case of a spike in demand, vaccines for hospitals can be replenished faster.

Supplier Managed Inventory Process

For an overview of the Supplier Managed Inventory process, watch this video.

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