What is the purpose of vendor-managed inventory (VMI)?

• A. The buyer manages supplier relationships to reduce costs.
• B. The supplier manages inventory levels at the buyer's location to optimize replenishment and reduce stockouts.
• C. A method of accelerating shipments through digital channels.
• D. A policy to extend payment terms with suppliers.

Answer: (B)

Vendor-managed inventory is a collaborative arrangement where the supplier takes responsibility for maintaining the buyer’s on-hand inventory and replenishing it as needed. The supplier uses visibility into stock levels and actual consumption to decide when and how much to reorder, so inventory at the buyer’s site stays aligned with demand and stockouts are minimized. This shifts some inventory risk to the supplier, reduces the buyer’s planning burden, and can lower overall inventory while improving service levels. Technology and data sharing—like demand and stock data—enable timely replenishment.

That’s why this option best captures the purpose: the supplier manages inventory levels at the buyer’s location to optimize replenishment and reduce stockouts. The other statements describe different ideas (managing supplier relationships, accelerating shipments through digital channels, or extending payment terms) that aren’t what VMI is fundamentally about.