The disposition of a customer’s existing inventory should be one of the first topics discussed when negotiating a VMI contract. A distributor needs to know how much it will cost him (and it always costs him something), so that he can make sure that the gross profits earned under the new agreement will cover this expense and provide a return on investment. Company should have separated the "good" stock from the "dead" stock, and given the customer full credit only on the material that could be resold.
Many distributors have jumped at the chance to get these "vendor managed inventory" or VMI contracts.
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