What is a key component of vendor managed inventory systems?

A key component of vendor-managed inventory (VMI) systems is that suppliers determine reorder points based on usage. In a VMI system, the vendor takes responsibility for managing the inventory levels and replenishing stock based on real-time data regarding product usage. This collaboration allows suppliers to adjust inventory levels in response to customer demand, optimizing stock levels and reducing the risk of stockouts or excess inventory.

This approach contrasts with traditional inventory management, where customers would typically manage their own stock levels, often leading to inefficiencies and delays in restocking. By allowing suppliers to monitor and control inventory, VMI enhances supply chain efficiency and can lead to cost savings for both parties through improved coordination and less need for safety stock.

The other options do not reflect the primary focus of vendor-managed inventory systems. Customizing products for each customer is not a core component, as VMI focuses more on stock levels rather than product customization. Customers placing orders directly with manufacturers relates more to order management than the VMI concept. Lastly, retailers managing all supplier stock conflicts with the fundamental idea of VMI, which is to shift that management responsibility to the vendor.