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Vendor Managed Inventory (VMI)

A unique yet important aspect of managing inventory considers who owns it. Historically companies owned and managed all of their inventories. They were responsible for the storing, controlling, replenishing, and overall management of the inventory. With supply chain management (SCM), most of this has changed. Today, many firms have implemented vendor management inventory (VMI) arrangements. Here, the vendor is responsible for managing the inventory located at a customer’s facility. The vendor stocks the inventory, places replenishment orders, and arranges its display. The vendor typically owns the inventory until it is purchased by the customer.

VMI offers a number of important advantages to both the customer and the vendor. The vendor has greater control over its product. The vendor is required to work much more closely with the customer, giving the vendor a better understanding of how to serve the market. The customer, in turn, has less responsibility and financial burden over the inventory items. VMI requires both the vendor and the customer to work closely together. It represents one of the many partnership arrangements that have evolved in supply chain management.

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