What is meant by "Vendor Managed Inventory" (VMI)?

Vendor Managed Inventory (VMI) refers to a collaborative supply chain initiative where the responsibility for managing and replenishing inventory is transferred from the buyer to the supplier. In this system, the supplier is tasked with monitoring the inventory levels at the buyer's location and making decisions about restocking based on the agreed-upon metrics and understanding of demand patterns.

This approach streamlines inventory management, as the supplier, who often has more visibility and expertise regarding their own products, can respond more effectively to fluctuations in demand. By having the supplier manage inventory directly, it can lead to reduced stockouts, lower carrying costs, and optimized stock levels since the supplier can make timely replenishment decisions based on real-time data.

The other options do not accurately capture the essence of VMI. For instance, the concept of a buyer managing stock levels directly is contrary to VMI, where governance is shifted to the vendor. Completely outsourcing inventory would imply a lack of engagement or control from the buyer’s side, which is not representative of VMI since the buyer is still a key stakeholder. Lastly, while RFID technology can enhance inventory tracking, it is not a defining characteristic of VMI itself, as this management strategy can be implemented using various tracking methods.