Vendor Managed

Inventory (VMI)
A case based on the vendor-managed
inventory (VMI) relationship between Proctor
& Gamble and retail giant Walmart

Submitted by - Group 3
Abhiram Puthukkudi
Ananya Sharma
Garvit Arora
Sidharth Behl
Mukesh Joshi
Executive summary
The case is all about a reverse inventory system taking into
consideration the example of the World's powerful retailer -
Walmart and P&G.

Over the past twenty years, Walmart has become the world’s
largest and arguably most powerful retailer with the highest
sales per square foot, inventory turnover, and operating profit of
any discount retailer.

Walmart concentrated on developing a more highly structured

and advanced supply chain management strategy to exploit and
enhance this competitive advantage and assume market
leadership position.

Walmart gained a wealth of understanding about what was

going on in the business. Each brought an alternative approach
to forecasting, estimated their own and cross-price elasticity and
shelf out-of-stock rates, calculated store and DC fill rates,
analyzed assortment decisions, estimated inventory investment
and cost analyses, derived return on investment for the shelf
space, and illuminated category trends and its drivers.
Vendor managed inventory
Vendor Managed Inventory (VMI) is a business model where
the buyer of a product provides information to a vendor of
that product and the vendor takes full responsibility for
maintaining an agreed inventory of the material, usually at
the buyer's consumption location.

By utilizing the advantages of modern communication

technology, Walmart shares the data of its information
system with the suppliers, who then can monitor the current
amount of goods and the rate they are being sold. Based on
this information, the suppliers themselves can figure out
when Walmart will need to replenish its inventory and send
the delivery accordingly.

As a result, Walmart was able to expect close to 100% order

fulfillment on merchandise. In 1989, Walmart was named
Retailer of the Decade, with distribution costs estimated at a
mere 1.7% of its cost of sales – far superior to competitors like
Kmart (3.5%) and Sears (5%).
why should one Implement vmi?
It guarantees inventory reduction while lowering the likelihood of stock outs.

The vendor may send one or more of its representatives to the retailer's location in
order to control and monitor consumption.

VMI provides the advantage of dividing the risks between the two parties engaged.

It is advantageous, especially in the retail sector and for consumer packaged

goods, because there are only brief changes in the demand for the products.
Working model
A VMI begins by the concerned people agreeing upon the
following objectives: •

Inventory turns: the no. of times the inventory is replenished •

Fill rates/in-stock percentages: is a measure of an inventory’s

ability to meet demand. It is mainly concerned about the
percentage of customers satisfied from stock at hand •

Transaction costs: how much total worth of transaction do both

the parties do .

The customer sends a Product Activity Report which contains

demand information such as:
Sales and transfers

On-hand, *on-order and *in-transit inventory position

information for the items that have changed in due time
 BENEFITS
TO RETAILER TO SUPPLIER TO CUSTOMER
Improved Customer
Reduced Stock-outs. Reduction in errors .
Experience.
Reduced safety stock Reduction in safety Transparency .
needs. stocks .
Reduced administrative Strategic relationships Closer collaboration with
and procurement cost. are formed. customers.

Higher sales. Accurate forecasting Products available

of demand. when needed..
 Limitations
Loss of Inventory Control
This model is not beneficial for you if you want complete control over inventory.
Also, if you are unwilling to share internal data with a third-party vendor, this
model is not for you. You might also be unaware or not sure of the inventory
handling capabilities of your supplier.

Limited Options
Once you partner with a supplier for managing your inventory, it may cause
supply chain disruption if you become unsatisfied with their services. You might
come across suppliers that offer better products at cost-effective rates. But being
in VMI relation with the supplier, you might not be able to change your supplier
until the partnership ends.

Market Responsiveness
With your supplier going through the data insights and supplying inventory
accordingly, he might not be providing accurate data. Thus, you might not get
access to the correct sales forecast leading you to plan your business operations
on unreliable data.
Data driven supply chain innovation
When there is sharing of data from the retailer to the suppliers then
there exists healthy competition between them in order to provide
better insights on their products to retailer.
This intense competition in order
to gain better existence at retailers
space ultimately leads to
innovation which help both the
parties i.e the supplier and the
retailer.
e.g walmart case
Data driven supply chain innovation
Walmart first introduced the innovation of sharing data to its
supplier and gained advantages as supplier competed within
themselves to see their products performances optimized.

This in turn provided walmart with

opportunity to be smarter and
efficient more and more.

It turned out to be a place where new

ideas would be continuously
developed and improved to
everyone's benefit.
B2B Vendor managed inventory strategies
Vendor Onsite: In this instance, one of your employees is in
charge of your company's physical inventory counts on-site at
your customer's location.

Vendor Has Access to Customer Inventory System:

Managing your customer's inventory from your own location is
another sort of VMI agreement. Access to their inventory counts
via their MRP or ERP system is frequently required for this.
You'll specify the quantity that must always be kept in stock as
well as the maximum amount that can be restocked.
Learnings from walmart
Collaboration drives innovation, where shoppers,
retailers and suppliers all benefit from sharing data and
creating a central point of truth.

Innovation occurs when there is healthy competition

between and among suppliers in the supply chain
ecosystem.

Retailers and suppliers can gain insight by working with

trusted third-party partners who can leverage data
sciences to provide foresight for early action.

These early actions reduce the cost of merchandising,

make supply chains more efficient, and cultivate enduring
shopper loyalty.
Key Learnings
The right people are your asset. First, senior leadership makes or breaks any vendor-managed inventory
program. Senior leadership must provide commitment and support, have a high level understanding of the
value that can be achieved through a VMI program and be able to explain the whys

The second key to success is partnerships -This is back to point #1 – the right people; however, this is in
terms of the right people and partnerships with customers and suppliers. The definition of a partnership is
simple – ‘win-win’

The third key to success is a process - To ensure flawless execution and

customer service, process is king.

The fourth key to success is provider - The software tools and the provider
supports your people and process. For VMI, this can include EDI (electronic data
interchange) and VMI software tools.
thank you