Certified Supply Chain Professional (CSCP) Practice Exam

What potential benefit may a customer experience by entering into a consignment or VMI-consignment relationship?

1. Increased shipping costs

2. Improved control over inventory pricing

3. Reduced inventory management costs

4. Higher upfront costs for inventory

The correct answer is: Reduced inventory management costs

A customer entering into a consignment or Vendor Managed Inventory (VMI) consignment relationship can experience reduced inventory management costs. In these arrangements, the supplier retains ownership of the inventory until it is used or sold by the customer. As a result, the customer does not need to invest heavily in purchasing inventory upfront, which can lead to lower working capital requirements and reduced costs associated with managing inventory. Moreover, such relationships often allow for better forecasting and replenishment since the supplier is often more directly involved in monitoring inventory levels and demand patterns. This proactive involvement can minimize excess stock and stockouts, leading to improved efficiency in inventory management. By sharing the responsibility for inventory management, both the supplier and the customer can benefit from streamlined processes and reduced waste, ultimately contributing to lower overall inventory costs. In contrast, an increase in shipping costs, improved control over inventory pricing, or higher upfront costs for inventory do not align with the benefits typically associated with consignment or VMI arrangements. These models are developed to create a more favorable financial position for the customer by managing costs effectively.