There is a varied way for a company to compete in the market, creating an effective supply chain could be the choice by building a new way of a partnership with vendors. Eliminating non-added value through the supply chain such as lead time uncertainty can be done by implementing Vendor Managed Inventory (VMI). Information exchange between roles related to point of sales which cause vendors to have control over the inventory owned by retailers is a characteristic of VMI. A large number of actors had a positive impact from VMI, mainly it can control the bullwhip effect in the supply chain. With all the benefits derived from this concept, it comes with some risks involved. Most people pay more attention to what suppliers faced by implementing this concept instead of what’s on the retailer side. Selecting the right vendor to implement this concept by knowing the risk have to be a concern since retailer needs to rely on the vendor’s decision of their inventory. The objective of this research is to identify the risks faced by retailers and design the appropriate vendor selection model to apply the concept of VMI. Integrating method for identifying the risk (FMEA) and a method for solving multi-criteria decision making (FAHP) is believed to be able to obtain a robust result and reduce bias by considering the combination of assessment. Collecting data at retail company that already applied the concept of VMI was carried out as a case study in this study.