Adapting from System Dynamics methodology for model building and simulation, this paper provides a structural and systematic approach toward analyzing the actual operations of Vendor Managed Inventory in fastener supply chain and constructs application steps for implementation. Optimum replenishment parameters of VMI model are established through scenario designs, dynamic simulations, parameters tuning and key performance index measuring. Four key findings are: (1) VMI model is able to reinvent the competitive advantage of an enterprise and enhance the competitiveness of the entire industry; (2) the key success factor of VMI is acquisition and integration of the dynamic information over the supply chain; (3) the efficiency and effectiveness of VMI operation can be enhanced through dynamic modeling and parameter tuning; (4) Systematic modeling approach provide feasible methodology in solving real world VMI problems.