A system where the supplier assumes responsibility for optimizing inventory levels at the customer’s location. This collaborative approach empowers the vendor to make inventory replenishment decisions based on real-time demand and stock levels. For example, a manufacturer providing components to an automotive assembly plant could utilize this type of system to ensure a consistent supply of parts, reducing the risk of production delays due to shortages.
This methodology offers numerous advantages, including reduced inventory holding costs for the customer, improved order fulfillment rates, and streamlined supply chain operations. By granting suppliers direct visibility and control, businesses can often achieve greater efficiency and responsiveness to fluctuating market demands. Historically, it evolved as a strategy to foster stronger supplier-customer relationships and optimize overall supply chain performance.