Vendor‐Managed Inventory

Abstract

Abstract Vendor‐managed inventory (VMI) programs transfer inventory control decisions from the retailer to the supplier. VMI programs rely on information sharing to transmit customer demand and current inventory information to the supplier. The supplier is then in charge of determining the timing and quantity of inventory deliveries to retailers. Most VMI programs contain an initiating contract that specifies elements of the agreement including performance metrics and payment terms. VMI programs have been shown to reduce supply chain costs through shipment consolidation and incentive alignment of decentralized supply chain agents. However, not all VMI programs result in supply chain savings. Even in those cases where VMI can result in system‐wide savings, care must be taken to create agreements that are preferable to both suppliers and retailers.

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