CIM Vendor-Managed Inventory 4 — Questions and Answers
Question 1: A VMI arrangement where the vendor owns inventory until the customer actually uses or sells it is called:
- Consignment VMI (Correct answer)
- Standard VMI
- Managed replenishment
- Vendor-stocking program
Correct answer: Consignment VMI
Consignment VMI keeps title with the supplier until the point of consumption or sale, reducing the customer's working capital requirements.
Question 2: Which of the following best describes 'demand transparency' in the context of VMI?
- The supplier's access to the buyer's point-of-sale or usage data (Correct answer)
- Publishing vendor pricing to all customers
- Disclosing supplier cost structures
- Sharing competitor inventory levels
Correct answer: The supplier's access to the buyer's point-of-sale or usage data
Demand transparency means the supplier can see actual sales or consumption data at the customer's location, enabling accurate replenishment.
Question 3: In healthcare supply chains, VMI is often used in hospital stockrooms primarily to:
- Reduce nurse time spent on supply requisitioning and ordering (Correct answer)
- Increase pharmaceutical patent protection
- Comply with FDA labeling requirements
- Reduce surgical procedure times
Correct answer: Reduce nurse time spent on supply requisitioning and ordering
VMI in hospitals shifts supply management to the vendor so clinical staff can focus on patient care rather than inventory tasks.
Question 4: When calculating the economic benefit of VMI to the buyer, which cost reduction is most directly attributable?
- Reduction in purchase order processing and administration costs (Correct answer)
- Reduction in product unit cost
- Elimination of all safety stock
- Reduction in demand variability
Correct answer: Reduction in purchase order processing and administration costs
Because the vendor manages replenishment, the buyer no longer needs to generate and process purchase orders, cutting procurement administrative costs.
Question 5: A VMI vendor notices the customer's sales are trending upward by 15% week over week. The correct response is to:
- Proactively increase the replenishment quantity to prevent a stockout (Correct answer)
- Wait for the min level to be breached before acting
- Notify the customer and let them place a manual order
- Reduce replenishment to avoid overstock
Correct answer: Proactively increase the replenishment quantity to prevent a stockout
Under VMI, the vendor is responsible for using demand signals to adjust replenishment proactively before stockouts occur.
Question 6: Which of the following is a critical success factor for VMI implementation?
- Mutual trust and data sharing between trading partners (Correct answer)
- Exclusive use of a single logistics carrier
- Customer's willingness to increase safety stock
- Vendor maintaining multiple competing product lines
Correct answer: Mutual trust and data sharing between trading partners
VMI requires open sharing of proprietary sales data and confidence that the vendor will act in the customer's best interest.
Question 7: A vendor managing inventory for five retail locations notices one location consistently hits the minimum level faster than others. This most likely indicates:
- Higher demand at that location requiring location-specific min/max parameters (Correct answer)
- A data transmission error in the VMI system
- The vendor is over-replenishing other locations
- The location has a larger physical storage area
Correct answer: Higher demand at that location requiring location-specific min/max parameters
Demand variation across locations requires individualized min/max settings rather than a one-size-fits-all replenishment policy.
CIM Vendor-Managed Inventory 4
A VMI arrangement where the vendor owns inventory until the customer actually uses or sells it is called: