CIM Vendor-Managed Inventory 5 — Questions and Answers
Question 1: What is the primary difference between VMI and traditional buyer-managed replenishment?
- In VMI, the supplier decides when and how much to replenish; in traditional, the buyer does (Correct answer)
- In VMI, the buyer owns more inventory at all times
- VMI always uses consignment while traditional uses purchase orders
- VMI is only applicable to finished goods, not raw materials
Correct answer: In VMI, the supplier decides when and how much to replenish; in traditional, the buyer does
The defining characteristic of VMI is that replenishment authority is transferred from the buyer to the supplier.
Question 2: Which metric helps evaluate whether a VMI program is reducing excess inventory for the buyer?
- Inventory turnover ratio (Correct answer)
- Order cycle time
- Vendor on-time delivery rate
- Purchase order accuracy
Correct answer: Inventory turnover ratio
A rising inventory turnover ratio indicates that the vendor is keeping stock lean and aligned with actual demand rather than overstocking.
Question 3: In a manufacturing VMI scenario, raw material suppliers monitoring the manufacturer's production schedule directly is an example of:
- Production-triggered replenishment (Correct answer)
- Safety stock elimination
- Push inventory strategy
- Lot-for-lot ordering
Correct answer: Production-triggered replenishment
When suppliers use the customer's production schedule as the replenishment trigger, they replenish based on planned consumption rather than historical demand.
Question 4: A retailer wants to implement VMI but is concerned about giving a supplier competitive intelligence. The best mitigation strategy is:
- Sharing only aggregated SKU-level data with category-level access restrictions (Correct answer)
- Refusing VMI and maintaining traditional ordering
- Sharing all data but requiring a non-disclosure agreement only
- Limiting VMI to non-core product categories
Correct answer: Sharing only aggregated SKU-level data with category-level access restrictions
Limiting data granularity to what the supplier needs for replenishment decisions protects sensitive competitive information while enabling VMI.
Question 5: The transition from traditional purchasing to VMI typically requires the buyer's organization to shift focus toward:
- Supplier performance management and relationship oversight (Correct answer)
- Writing detailed purchase specifications
- Increasing the purchasing department headcount
- Tightening individual order approval controls
Correct answer: Supplier performance management and relationship oversight
With transactional ordering delegated to the vendor, the buyer's role evolves to monitoring vendor performance and managing the VMI partnership.
Question 6: Which scenario represents an appropriate use case for implementing VMI?
- High-volume, fast-moving items with stable demand from a strategic supplier (Correct answer)
- Low-volume, one-time purchase items from a spot market supplier
- Custom-engineered parts with highly variable specifications
- Commodities purchased at auction on an as-needed basis
Correct answer: High-volume, fast-moving items with stable demand from a strategic supplier
VMI delivers the greatest value when demand is predictable, volume is significant, and a long-term supplier relationship justifies the data sharing investment.
Question 7: A company implementing VMI should expect which of the following changes to its cash flow?
- Improved cash flow if consignment terms shift inventory ownership to the supplier (Correct answer)
- Worsened cash flow due to higher unit prices under VMI agreements
- No change because the same goods are purchased regardless
- Improved cash flow only if order frequency increases
Correct answer: Improved cash flow if consignment terms shift inventory ownership to the supplier
Consignment VMI defers payment until goods are consumed, reducing the working capital tied up in inventory and improving the buyer's cash position.
CIM Vendor-Managed Inventory 5
What is the primary difference between VMI and traditional buyer-managed replenishment?