In a vendor-managed inventory arrangement, which statement is true?

• A. The buyer handles all replenishment decisions.
• B. The supplier manages inventory levels at the buyer's location to optimize replenishment.
• C. VMI eliminates the need for forecasting entirely.
• D. VMI guarantees the lowest possible prices.

Answer: (B)

Vendor-managed inventory focuses on giving the supplier visibility into what’s on hand and how fast items are being used, so replenishment decisions are driven by the supplier. The supplier continuously monitors stock levels at the buyer’s site and determines when and how much to reorder to keep inventory balanced and avoid stockouts. That’s why the true statement is that the supplier manages inventory levels at the buyer’s location to optimize replenishment.

Forecasting and planning still happen in VMI—the supplier uses demand data and usage trends to plan replenishments, rather than relying on the buyer to handle all ordering decisions. And VMI does not guarantee the lowest prices; pricing is separate from the replenishment approach and depends on negotiated terms.