Competitive Advantage with Vendor Managed Inventory

Abstract

Vendor managed inventory (VMI) has become a competitive supply chain management tool that has been used by retailers, suppliers and manufacturers to reduce inventory management cost over the last few decades. The basic concept of VMI is that suppliers (vendors) are accountable for a customer’s inventory restocking when supply is low. Minimum inventory levels, consignment stocks, and vendor ordering are three of the key terms associated with this model that is designed to work on the order fulfillment processes of a company. As with every business model, there are several advantages and disadvantages of VMI for both the buyer and the supplier that should be considered before deciding to implement. We discuss critical issues concerning vendor managed inventory and examine the impact of VMI on the organization and its supply chain network.