39 lines
1.5 KiB
Markdown
39 lines
1.5 KiB
Markdown
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<!-- generated: provider=openrouter model=arcee-ai/trinity-large-preview:free date=2026-02-22 source=coordination-mechanisms -->
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# Vendor-Managed Inventory
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## Definition
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A supply chain coordination arrangement in which the supplier takes
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responsibility for maintaining stock levels at the buyer's location,
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using shared inventory data to trigger automatic replenishment. Payment
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occurs at point of consumption rather than delivery. The buyer surrenders
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operational control over replenishment in exchange for reduced
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administrative burden and improved demand signal quality.
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## Source
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Coordination Mechanisms in Modern Supply Chains, §Vendor-Managed Inventory
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## Supply Chain Domain
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Coordination
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## VSM Assignment
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S2 — VMI is a formal coordination mechanism that assigns the replenishment
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function to the party best positioned to perform it. It reduces oscillation
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(the bullwhip) by giving the upstream party direct visibility of
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consumption rather than batched orders.
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## WoN Concept
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Division of Labour — VMI is an application of Smith's division of labour
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principle at the inter-firm level. The inventory management function —
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previously split between buyer (demand tracking) and supplier (order
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fulfilment) with coordination friction between them — is consolidated
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with the supplier, who has the information and capability to perform it
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most efficiently. The functional specialisation reduces transaction costs
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and improves the quality of the upstream demand signal, mirroring Smith's
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argument that specialisation improves output quality and reduces waste.
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