Why VMI matters for Swiss SMEs
Vendor-Managed Inventory (VMI) is a procurement model in which the supplier monitors the customer's stock levels, plans replenishment, and often keeps goods at the buyer's warehouse until actual consumption or withdrawal. For distributors, industrial manufacturers, and B2B retailers in Switzerland, VMI reduces stockouts and frees up working capital, but it raises delicate questions about ownership of goods, loss risk, and the accounting timing of revenue and cost.
Unlike traditional purchasing — where the invoice coincides with delivery and transfer of ownership — in VMI the economic and legal transfer may occur at different times. An SME that adopts VMI without clarifying these steps risks understating liabilities, omitting stock from the balance sheet, or recording costs in the wrong periods, with effects on reported liquidity and the VAT tax base.
This guide explains how VMI works in the Swiss context, which contractual clauses define liability and ownership, and how to account for it in compliance with Swiss accounting standards (Code of Obligations and GAAP/FER).
What VMI is and how it differs from other stock models
Before setting up the accounting, it is essential to identify precisely the contractual model adopted. Not every arrangement in which the supplier "manages" the warehouse is pure VMI:
Classic purchase
The customer orders, receives, and pays. Ownership and risk pass on delivery (unless otherwise agreed). Stock and cost are recognised on goods receipt.
VMI (Vendor-Managed Inventory)
The supplier decides replenishment timing and quantities based on shared data (EDI, portal, scanner readings). Ownership and invoicing typically occur on withdrawal or consumption, not on physical delivery.
Consignment / deposit account
Goods held on deposit at the customer, supplier ownership until sale to a third party. Similar to VMI, but with a commercial logic oriented toward resale; accounting follows analogous rules on transfer of ownership.
In typical B2B VMI — for example, components at a mechanical workshop in Ticino or consumables at a wholesaler — the supplier maintains visibility over stock levels through periodic reports or ERP integration. The customer does not place ad hoc orders but commits to withdraw within agreed limits. The contract must explicitly define when transfer of ownership is deemed to occur: on withdrawal from the bin, on scanning in production, on actual consumption, or on periodic invoicing.
Comparison table: VMI, standard purchase, and consignment
The criteria below help map the contractual model to the correct accounting and tax treatment:
| Criterion | Standard purchase | VMI | Consignment / deposit |
|---|---|---|---|
| Who plans replenishment | Customer (purchase order) | Supplier (min/max thresholds) | Supplier or customer, per contract |
| Typical ownership | Customer on delivery | Supplier until withdrawal/consumption | Supplier until sale or withdrawal |
| Loss/deterioration risk | Customer from transfer of ownership | To be defined in writing (as a rule, supplier while it remains owner, unless otherwise agreed) | Often supplier until transfer |
| Stock on customer balance sheet | Yes, on receipt | Yes, from the moment of transfer of ownership | No while ownership remains with supplier; possible disclosure item |
| Invoicing | On delivery or on credit terms | On withdrawal, consumption, or agreed billing cycle | On sale to third party or on withdrawal |
| VAT implication (CH) | Tax on transfer of the power to dispose of the asset | On actual transfer of ownership | On transfer of ownership, not on mere custody |
| Inventory controls | Physical stock = accounting stock | Physical stock includes supplier goods; accounting stock only owned portion | Mandatory separation between own stock and consignment |
VMI contract: clauses that determine accounting treatment
Swiss law (Art. 184 et seq. CO and Art. 714 CC) allows the timing of transfer of ownership to be agreed in writing. Accounting follows substance, not the commercial label of the contract. The essential clauses to review or negotiate are:
Transfer of ownership
Specify precisely the event that triggers transfer of ownership: withdrawal from the VMI warehouse, entry into the production line, signed weekly consumption report, or automatic invoicing. Ambiguity here is the main source of accounting errors.
Risk and custody
Define who bears the risk of theft, fire, deterioration, and obsolescence for goods still owned by the supplier but physically present at the customer. In the absence of an agreement, the general CO rules on transfer of benefits and risks apply (Art. 185 CO for sale of goods). An SME should assess whether its goods insurance covers third-party VMI stock.
Inventory and reconciliation
Frequency of physical counts, tolerances for variances (shrinkage), liability in case of discrepancies between physical stock and EDI reports. For year-end closing, a clear cut-off is needed between supplier stock and stock recognised by the customer.
Pricing, returns, and obsolescence
Price list applicable at the moment of transfer of ownership, conditions for returns of unsold or unused material, and handling of discontinued items. These directly affect write-downs and provisions.
Compliant accounting: GAAP/FER and year-end closing
Under Swiss accounting standards (Art. 957a et seq. CO; GAAP/FER for SMEs), goods must be recorded on the balance sheet when they are owned by the company and the purchase cost can be determined with reasonable certainty. In VMI:
Customer side (buyer SME)
- VMI stock not yet owned: off balance sheet; maintain analytical register or separate virtual warehouse in the ERP system.
- On transfer of ownership: DR Inventory / Stock — CR Accounts Payable (and recoverable VAT if applicable).
- Cost of goods sold: at the time of consumption in production or sale, according to the valuation method adopted (FIFO, weighted average, etc.).
- At year-end: physical inventory with distinction between own stock and supplier stock; adjust any inventory variances.
Supplier side (if you also sell on VMI terms)
- Goods at the customer but still your property: remain in stock (goods in transit or deposit with third parties).
- Revenue: recognised on transfer of ownership to the customer, not on physical delivery alone.
- Receivables: due according to agreed invoicing terms (e.g. monthly invoicing on withdrawals).
- Check whether segregation of consignment stock in the notes to the financial statements is required if material.
For companies subject to ordinary or limited audit, the auditor will verify consistency between the contract, warehouse movements, and accounting entries. Document the period-end cut-off: a report signed by the supplier listing the value of goods still owned by it at your premises is often the strongest evidence.
Swiss VAT in VMI
Under the VAT Act (MWSTG), tax applies when a "supply" is made — defined as the transfer of the power to dispose economically of an asset in one's own name (Art. 3 para. 1 let. d MWSTG). In VMI, the taxable supply coincides with the contractually agreed transfer of ownership, not necessarily with the delivery date to the customer's warehouse.
If the supplier is domiciled abroad and delivers goods to a VMI deposit in Switzerland, check whether the conditions for call-off stock under the VAT Act (Art. 4) are met: if the recipient and consideration are known at import and the goods are in free circulation at the time of supply, the place of supply may remain abroad until withdrawal. Import VAT, by contrast, follows the customs rules applicable to the physical introduction of goods into Swiss territory. For cross-border B2B transactions, customs documentation and proof of the status of goods (custody vs purchase) are decisive in avoiding double taxation or omissions.
Retain invoices, customs documents, withdrawal reports, and VMI contracts for at least ten years, as required by Art. 958f CO and, for VAT taxpayers, Art. 70 MWSTG.
Internal controls and physical inventory
A well-managed VMI reduces procurement costs but requires operational discipline. For SMEs with small teams, these minimum controls prevent balance sheet surprises:
| Control | Recommended frequency | Accounting objective |
|---|---|---|
| EDI / ERP reconciliation vs physical stock | Weekly or monthly | Align recorded withdrawals and expected invoices |
| Physical count of VMI area | Quarterly; mandatory at year-end | Separate own stock and supplier stock |
| Verification of cut-off clauses with supplier | At each annual closing | Correct recognition of stock and liabilities at 31 December |
| Review of obsolescence and returns | Semi-annual | Compliant provisions and write-downs (Art. 960 CO) |
Integrating the warehouse module of your accounting ERP — such as Accountex — with dedicated VMI item codes and a "supplier ownership" flag simplifies automatic generation of entries on withdrawal and preparation of the inventory report for the auditor.
Practical example: mechanical workshop with VMI on components
A mechanical workshop in the canton of Aargau enters into a VMI contract with a distributor of screws, fasteners, and consumables. The distributor maintains a minimum of CHF 15,000 list-value stock at the workshop's warehouse. Ownership passes when the barcode is scanned in production; invoicing takes place at the end of each month based on recorded withdrawals.
At the end of December, the physical inventory shows CHF 18,200 of goods on hand: CHF 12,400 already owned by the workshop (withdrawn but not yet consumed or already recognised) and CHF 5,800 still belonging to the distributor. On the 31 December balance sheet, the workshop records CHF 12,400 in stock; the CHF 5,800 remain off balance sheet and are confirmed by a supplier report attached to the closing documentation. In January, the previous month's withdrawals generate an invoice of CHF 3,100 + VAT, recorded as accounts payable and material cost.
This approach avoids inflating current assets and liabilities with goods not yet acquired and ensures consistency between VAT, stock, and operating margins.
Checklist: VMI ready for audit and tax compliance
- ✓Written VMI contract with explicit clause on transfer of ownership and risk
- ✓Separate ERP warehouse or flag for supplier-owned stock vs own stock
- ✓Documented cut-off procedure for year-end closing
- ✓Periodic reconciliation between supplier reports, withdrawal movements, and invoices
- ✓VAT treatment verified for Swiss and foreign suppliers
- ✓Insurance coverage and obsolescence defined for goods in custody
- ✓Stock valuation and cost method (FIFO/average) applied consistently
VMI is an effective logistics tool for Swiss SMEs seeking to optimise inventory and supplier relationships. Accounting compliance does not depend on software, but on clear contracts, traceability of withdrawals, and disciplined period-end closings — elements that an integrated ERP such as Accountex can automate once the legal and economic model of the arrangement is defined.