What is vendor managed inventory (VMI)?

Vendor managed inventory (VMI) is indeed a form of inventory control where the supplier takes responsibility for managing the inventory levels on behalf of the retailer. In this model, the supplier analyzes sales data and inventory levels to determine the optimal stock levels needed, and then they restock the inventory directly at the retailer's location as needed. This arrangement builds a partnership between the supplier and retailer, streamlining the supply chain and ensuring that the retailer consistently has the right amount of product on hand without overstocking or stockouts.

This approach allows retailers to focus on other aspects of their business while relying on the supplier's expertise in inventory management. By integrating real-time data exchange, VMI often leads to improved efficiency in inventory turnover, reduced carrying costs, and a more responsive supply chain.

In contrast, the other options do not accurately define VMI. For instance, suggesting that retailers dictate inventory levels assumes a more traditional, transactional approach that lacks the collaborative intent of VMI. While reducing supplier costs is important, it does not encompass the cooperative management of inventory that characterizes VMI. Lastly, while collaboration is a key aspect of VMI, emphasizing customer service as the main strategy does not capture the essence of inventory management that VMI focuses on.