Proctor and Gamble but not WalMart manages the inventory at

Proctor and Gamble (but not Wal-Mart) manages the inventory at the distribution centers owned by Wal-Mart. This is an example of a concept called vendor Managed Inventory (VMI). How does Wal-Mart\'s supply chain benefit from VMI? Discuss with reasoning.

Solution

Under VMI a manufacturer/distributor undertakes the role of inventory planning for the client. Detailed information sharing is needed so that the manufacturer can maintain a good degree of visibility of its goods at the client’s location. Instead of the client reordering when its supply has been finished, the supplier is responsible for replenishing and stocking the client at appropriate levels. Wal-Mart has ventured into VMI and is the firm against which many others benchmark themselves

Benefits to Walmart
So long as the supplier carries out its work of maintaining predetermined inventory and avoiding stockouts, it will be able to lock in a VMI-supported client for the long term with or without a contract. This makes a steady and predictable flow of income for the supplier and eliminates the risk that the client will switch suppliers (as switching would be expensive for the client). A VMI arrangement enables the supplier to schedule its operations more productively as it is now monitoring its client’s inventory on a regular basis. Also, reductions in inventory will be obtained once the supplier develops a superior understanding of how the client utilizes its goods in the course of a year