VMI essence and purpose

The VMI concept may be seen as a collaboration between the customer and the supplier that optimises the availability of products through ongoing replenishment based on information on the current demand, which helps reduce the costs of both business partners (Hines et al. 2000, p. 335). When following the principles governing the VMI concept, the supplier takes responsibility for operational management of the purchaser s inventory and the purchaser is obliged to provide the supplier with regular information that allows constant product replenishment. 

The VMI s improvement potential, as is the case with S OP, results from the purpose and manner of application. Empirical research Qames, Rich and Francis 1997) shows that two methods of initiating measures under VMI are used. They are domination and collaboration. The first method is based largely on the bargaining power of the customer, who is also the initiator of VMI implementation. The replenishment process is initiated so as to reduce inventory management costs mainly by pushing inventories down the supply chain, which, naturally, burdens the suppliers. These practices contradict the assumptions of cooperation in a supply chain, i.e. partnership, confidence and mutual benefit they usually prove imsuccessful for both parties. The cooperation-based 

Continuous replenishment of customers inventories based on VMI makes it possible, for instance, for the supplier to  

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