CIM Vendor-Managed Inventory 3 — Questions and Answers
Question 1: Which supply chain structure is VMI most closely associated with?
- Collaborative planning, forecasting, and replenishment (CPFR) (Correct answer)
- Push-based distribution systems
- Independent demand inventory models
- Periodic review fixed-order-quantity systems
Correct answer: Collaborative planning, forecasting, and replenishment (CPFR)
VMI is a foundational element of CPFR, where both supplier and retailer share data and collaborate on replenishment decisions.
Question 2: A distributor using VMI for a hospital client sets a reorder point of 500 units and a target level of 1,200 units. Current stock is 480 units. What should the distributor do?
- Replenish 720 units to restore the target level (Correct answer)
- Wait for the hospital to submit a purchase order
- Replenish to exactly 500 units
- Reduce the reorder point to avoid frequent shipments
Correct answer: Replenish 720 units to restore the target level
When stock falls below the reorder point, the vendor replenishes up to the target level: 1,200 − 480 = 720 units.
Question 3: What is the main disadvantage VMI poses for the customer organization?
- Loss of direct control over inventory replenishment decisions (Correct answer)
- Higher purchase price per unit
- Reduced product availability
- Increased administrative purchase order workload
Correct answer: Loss of direct control over inventory replenishment decisions
Ceding replenishment decisions to the vendor means the customer must trust the supplier's judgment and data accuracy.
Question 4: Which industry was among the first to pioneer large-scale VMI implementation?
- Mass-market retail / consumer packaged goods (Correct answer)
- Aerospace manufacturing
- Healthcare pharmaceuticals
- Financial services
Correct answer: Mass-market retail / consumer packaged goods
Walmart and Procter & Gamble's partnership in the late 1980s is the landmark early VMI success story in consumer packaged goods.
Question 5: In a VMI contract, the vendor's replenishment authority is typically bounded by:
- Min/max inventory parameters agreed upon with the customer (Correct answer)
- The vendor's production capacity ceiling
- Customer's annual budget cycle
- Regulatory safety stock requirements
Correct answer: Min/max inventory parameters agreed upon with the customer
Min/max parameters define the floor (reorder point) and ceiling (target stock level) within which the vendor manages replenishment.
Question 6: How does VMI typically affect a supplier's transportation costs?
- Can reduce costs by enabling consolidated, optimized shipment scheduling (Correct answer)
- Always increases costs due to more frequent deliveries
- Has no impact because the customer controls logistics
- Eliminates transportation costs entirely
Correct answer: Can reduce costs by enabling consolidated, optimized shipment scheduling
With control over timing, the supplier can consolidate loads and optimize routes, often reducing per-unit transportation cost.
Question 7: A technology prerequisite for successful VMI implementation is:
- Real-time inventory visibility systems at the customer's location (Correct answer)
- Customer ERP with manual entry capability
- Vendor-owned warehouse management system only
- Paper-based cycle count reporting
Correct answer: Real-time inventory visibility systems at the customer's location
The vendor must see current inventory levels at the customer's site in real time to make accurate replenishment decisions.
CIM Vendor-Managed Inventory 3
Which supply chain structure is VMI most closely associated with?