What does a vendor managed inventory (VMI) system primarily involve?

A vendor managed inventory (VMI) system fundamentally involves the supplier taking responsibility for managing the inventory levels at the customer’s site. This system allows suppliers to forecast demand and replenish stock based on actual consumption rates, which optimizes inventory levels and reduces the likelihood of stockouts or overstock situations for the customer.

By effectively monitoring inventory levels at the customer’s location, suppliers can respond promptly to changes in demand and ensure that the customer has the right amount of products available without requiring the customer to manage those levels actively. This collaborative approach not only streamlines operations but also fosters a stronger partnership between suppliers and customers, ultimately leading to better efficiency and potential cost savings for both parties.

The other options do not capture the essence of a VMI system. Management by customers would not leverage the efficiency and expertise of suppliers, while handling all communications by retailers does not focus on managing inventory levels directly. Government oversight lacks the direct involvement of suppliers in inventory management and is more about regulation than operational management.