Partners under vendor managed inventory(VMI) in a supply chain act as principal and agent. When the principal-agent approach was carried out, both parties may have their own targets causing diversified risks, and the principal should stimulate his agent to have a win-win cooperation. This paper examined how the supplier gave his incentives to minimize loss in a VMI system with a supplier and a distributor when being out of stock. The author also constructed incentive models to help the supplier make an effective contract under following two situations, namely, whether the supplier can or not observe the distributor's effort.