What is Vendor Managed Inventory (VMI)?

Vendor Managed Inventory (VMI) refers to a practice in supply chain management where the supplier takes responsibility for managing and replenishing inventory for the buyer. In this arrangement, the supplier monitors the buyer's inventory levels and makes decisions about inventory replenishment based on agreed-upon metrics and data. This approach can lead to improved supply chain efficiency, as the supplier has direct insight into inventory usage and can optimize the stock levels accordingly.

The rationale behind VMI is that suppliers often have a better understanding of their products and the demand patterns associated with them. By allowing them to manage the inventory, it can reduce stockouts, minimize excess inventory, and improve overall service levels. This collaborative strategy aligns the interests of both suppliers and buyers, facilitating more effective inventory management and fostering better relationships.

The other options do not accurately capture the essence of VMI. While some aspects of managing the buyer's inventory may be involved, VMI is primarily about supplier management of inventory rather than merely a method for cost reduction or simply managing inventories from the buyer's perspective.