What is vendor-managed inventory (VMI)?

• A. A program where the supplier manages inventory levels at the customer's site based on agreed thresholds and replenishment.
• B. A system where the buyer manages all inventories in the supplier's warehouse.
• C. A method of outsourcing logistics to third-party carriers.
• D. A policy for returning defective goods.

Answer: (B)

Vendor-managed inventory is a setup where the supplier takes responsibility for maintaining the customer's stock levels at the customer's location, using data shared by the customer (like on-hand inventory and usage) to replenish to agreed service levels. The supplier monitors stock and triggers replenishment or ships products as needed, often maintaining ownership of the inventory until it’s consumed. This arrangement reduces stockouts and administrative workload for the buyer and aligns supplier actions with actual demand. Other descriptions describe different concepts—for example, the buyer managing inventories in the supplier’s warehouse is a different inventory arrangement, outsourcing logistics focuses on transportation, and returns policies cover defective goods.