Evidence has shown that vendor-managed inventory (VMI) can improve supply chain performance by
decreasing inventory levels and increasing fill rates; as
a result, industry use of VMI has grown over time [10].
VMI is a collaborative commerce initiative where suppliers are authorized to manage the buyer’s inventory of
stock-keeping units. It integrates operations between
suppliers and buyers through information sharing and
business process reengineering. By using information
technologies, such as Electronic Data Interchange
(EDI) or Internet-based XML protocols, buyers can
share sales and inventory information with suppliers
on a real time basis. Suppliers can then use this information to plan production runs, schedule deliveries,
and manage order volumes and inventory levels at
the buyer’s stock-keeping facilities.
The potential benefits from VMI are very compelling and can be summarized as reduced inventory
costs for the supplier and buyer and improved customer service levels, such as reduced order cycle
times and higher fill rates [1,25]. These benefits
have been realized by successful retailers and suppliers, most notably Wal-Mart and key suppliers like
Proctor and Gamble [4]. Given that not all supply
chains use VMI or related supply chain initiatives
(e.g., continuous replenishment) however, unde