In this article, we explore what vendor management inventory agreement is along with a real-world example to illustrate how it works. We also provide a basic sample contract for you to get started. Read on to learn more.
A vendor management inventory (VMI) agreement defines the terms by which a vendor manages the inventory levels of a customer. This helps to reduce stockouts, decrease inventory levels, and streamline the supply chain.
Example: Walmart and Procter & Gamble (P&G) pioneered a VMI model through an agreement, where P&G managed inventory levels for its products in Walmart stores, optimizing stock levels and reducing out-of-stock scenarios. This collaboration streamlined operations and enhanced customer satisfaction by ensuring product availability.
Below is a basic example of a vendor management inventory agreement:
This Agreement is made this [Date], by and between [Vendor Name], a [Vendor's Legal Structure, e.g., "corporation"] with its principal place of business at [Vendor Address] ("Vendor") and [Customer Name], a [Customer's Legal Structure, e.g., "corporation"] with its principal place of business at [Customer Address] ("Customer").
Purpose: Vendor agrees to manage and replenish inventory of certain products sold to Customer as outlined in Exhibit A.
Responsibilities:
a. Vendor:
b. Customer:
Inventory Levels: Inventory levels shall be mutually agreed upon and listed in Exhibit B. Levels may be adjusted with [e.g., "30 days"] notice by either party.
Ordering and Delivery: Vendor commits to delivering products within [e.g., "48 hours"] of inventory reaching reorder points.
Pricing and Payment: Product prices will be as per the existing contract or as mutually agreed upon. Invoices will be issued upon delivery of products, with net [e.g., "30"] day terms.
Term and Termination: This Agreement will commence on [Start Date] and will continue for [e.g., "12 months"], unless terminated earlier. Either party may terminate with [e.g., "30 days"] written notice.
Liability: Neither party will be liable for any indirect, special, or consequential damages resulting from this Agreement.
Confidentiality: Both parties agree to treat all information regarding this Agreement as confidential.
Governing Law: This Agreement shall be governed by the laws of [State/Country].
Amendments: This Agreement may be changed only in writing signed by both parties.
Entire Agreement: This Agreement, including Exhibits A and B, constitutes the entire agreement between the parties and supersedes all previous agreements and understandings between the parties.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
Vendor
Signature: _______________ Date: _________
Customer
Signature: _______________ Date: _________
Exhibit A
[List of products for which inventory will be managed]
Exhibit B
[Table of products with minimum and maximum inventory levels]
Note: This is a basic template and may not be comprehensive enough for all situations. Always consult with legal counsel when drafting or entering into an agreement to ensure that it adequately protects your interests and complies with applicable laws and regulations.
We hope this article has given you a better understanding of the vendor management inventory agreement and what it covers.
If you enjoyed this article, you might also like our article on vendor management inventory or our article on inventory costing methods.
