Article

Contracting for vendor-managed inventory with consignment stock and stockout-cost sharing

May 2014
International Journal of Production Economics 151:158–173

DOI:10.1016/j.ijpe.2013.10.008

Authors:

Jun-Yeon Lee

California State University, Northridge

Richard Cho

University of New Brunswick

We examine the problem of designing a vendor-managed inventory (VMI) contract with consignment stock and stockout-cost sharing in a (Q, r) inventory system between a supplier and a retailer. In particular, the contract specifies fixed and proportional penalties charged to the supplier when stockouts occur at the retailer. The retailer chooses the penalties and offers the contract to the supplier, and the supplier can accept or reject the contract. If he accepts it, the supplier manages the inventory at the retailer and makes replenishment decisions. For the deterministic demand we characterize the optimal contract for the retailer and the corresponding optimal inventory policy for the supplier. Our computational study for the deterministic and stochastic demands provides several interesting results. In particular, it suggests that VMI may result in significant cost savings for both the retailer and the supplier, but that the retailer may not always benefit from VMI. Our study also sheds lights on the relationship between VMI and replenishment leadtime and the value of information sharing on the retailer's stockout quantity in VMI contracting.

Modelling of vendor managed inventory with consignment stock in Indian production process: using ISM methodology

Article

Full-text available

Jan 2019

VMI with CS is a modern SCM adopted by Indian production process to survive in high competitive environment. The business performance is more profitable, economic and strategic by adaptation of VMI with CS model in an imperfect production environment and more competitive edges in multi dimensions aspects. With the help of literature survey group of cluster variables, four groups of cluster variables were identified. These are objectives variables, operational driver's variables, obstacle variables, and operation affected variables clusters in an imperfect production environment. The coordination mechanism has played a crucial role in an imperfect production and controlled all stages. Using ISM techniques for driving and dependent variables can easily be differentiated. The objective of the proposed framework is to develop business practices such as poor vendor's production process challenges and their control of production stages. The managerial implication to understand uncertain production environment, where delivery lead time and market demand fluctuates over long interval of time, provides research which may lead to win-win situation for each stake holder of SC.

Bir süpermarket zincirinde iki seviyeli tedarikçi yönetimli stok problemi için etkili bir sezgisel yöntem

Article

Full-text available

Sep 2022

Bu çalışmada, yüksek müşteri talebi değişkenliği ile karşı karşıya olan bir zincir marketin gerçek hayat sevkiyat problemine odaklanılmıştır. Firma, mağazalarını bulundukları bölgelere göre gruplandırmış ve her mağaza grubunun ikmali için bir dağıtım merkezi (DM) oluşturmuştur. Düzenli aralıklarla bu DM’lerden kendine bağlı olan mağazalara ikmal yapılmaktadır. Mevcut durumda firma, mağazalardan gelen yüksek talep değişkenliğine cevap verebilmek için çok yüksek sözleşme maliyetleri pahasına DM’lerdeki işçi sayısını artırıp azaltmaktadır. Buna rağmen mağazaların talepleri zamanında karşılanamamakta ve satış kaybı yaşanmaktadır. Bu çalışmada, değişkenliğin getirdiği bu olumsuz etkileri minimize etmek üzere DM’ler için sevkiyat planı oluşturulması problemi ele alınmıştır. Önce problemin doğrusal programlama modeli geliştirilmiştir. Büyük boyutlu örnekler için geliştirilen model cevap vermediğinden çözüm için iki farklı sezgisel önerilmiştir. Ayrıştırma (decomposition) yaklaşımı olarak isimlendirilen ilk yöntemde, geliştirilen model her mağaza için ayrı ayrı uygulanmıştır. İkinci sezgisel yaklaşımda problem ulaştırma modeline dönüştürülerek ele alınmıştır. Çözüm için iki aşamalı bir yöntem benimsenmiştir. Önerilen çözüm yöntemlerinin etkinliği, çeşitli boyutlardaki test verisi kullanarak karşılaştırmalı bir şekilde sunulmuştur. Elde edilen sonuçlar önerilen ulaştırma modeli temelli yaklaşımın devasa boyutlardaki gerçek hayat problemlerine kabul edilebilir zamanda ve her hangi bir ticari çözücüye ihtiyaç duymaksızın kaliteli çözümler üretebildiğini göstermiştir.

Vendor-managed inventory in practice: understanding and mitigating the impact of supplier heterogeneity

Article

Full-text available

Oct 2021

Vendor managed inventory (VMI) agreements are a supply chain collaboration principle in which the supplier is responsible for keeping the inventory at the buyer between given lower and upper inventory limits. VMI gives the supplier a lot of autonomy while making replenishments, allowing the supplier to efficiently ensure availability at the buyer. But different suppliers may apply different approaches for staying between the limits under VMI. Relatedly, the objectives of a supplier are not completely aligned with those of the buyer. We develop a methodology for setting appropriate lower and upper inventory limits, taking into account the heterogeneity in the supplier base. To this end, by distinguishing between various possible strategic supplier objectives and various approaches for staying within the inventory limits, we arrive at four possible supplier types. We develop a methodology for classifying suppliers into one of these four types based on historic inventory trajectories and argue how to set inventory limits tailored to each supplier type. A case study of the approach at a large high-tech manufacturer reveals that the approach accurately identifies the type of each of the 47 VMI suppliers of the manufacturer. Moreover, a simulation with company data shows that tailoring inventory limits to the suppliers' types may lead to a cost reduction of 4–6% without reducing the service level, as compared to a benchmark method that does not take into account supplier types.

An integrated approach of fuzzy AHP and fuzzy TOPSIS in modelling contractual design of supply chain inventory coordination mechanism

Article

Full-text available

Jul 2020

Mukesh Kumar

In recent decades, firms are facing the challenges of lack of inventory coordination issues in multi echelon inventory coordination environment. Contractual design of supply chain inventory coordination mechanism (SCICM) are necessary for effective and efficient SCM and not merely better profit distribution within supply chain trading partners (SCTPs), but effective coordination mechanism is key necessity for complex supply flow network. SC structure consists of SV and MB, SC for a multi products flow network considered. SCTPs can be coordinated by better contractual design for perfect SCICM. These criteria are namely controllable lead time and asymmetric information; common replenishment epoch; inventory-level-dependent demand rate; VMI system with stock-out cost sharing; sales rebate contract and VMI. FAHP and FTOPSIS approaches can be used to integrate more consistent evaluation and prioritisation of SCTPs based on five SCICM criterion determined by factor analysis of survey data and expert opinion of retail industry. FAHP is used to calculate relative weight of each SCICM criteria and SCP is ranked based on closeness coefficient. Calculated for each partners are using FTOPSIS.

Modelling of vendor managed inventory with consignment stock in Indian production process: using ISM methodology

Article

Full-text available

Jan 2019

VMI with CS is a modern SCM adopted by Indian production process to survive in high competitive environment. The business performance is more profitable, economic and strategic by adaptation of VMI with CS model in an imperfect production environment and more competitive edges in multi dimensions aspects. With the help of literature survey group of cluster variables, four groups of cluster variables were identified. These are objectives variables, operational driver’s variables, obstacle variables, and operation affected variables clusters in an imperfect production environment. The coordination mechanism has played a crucial role in an imperfect production and controlled all stages. Using ISM techniques for driving and dependent variables can easily be differentiated. The objective of the proposed framework is to develop business practices such as poor vendor’s production process challenges and their control of production stages. The managerial implication to understand uncertain production environment, where delivery lead time and market demand fluctuates over long interval of time, provides research which may lead to win-win situation for each stake holder of SC.

Value of information in agro-food logistics management : a case of the Dutch floriculture supply chain network

Book

Full-text available

Sep 2019

Viet Nguyen

Data and information flows in agro-food supply chains have exponentially increased due to diverse embedded tracking/sensing devices, ubiquitous usage of computer systems, and increasing data/information sharing among firms. This promises a huge potential value when the data are gathered and turned into information/knowledge that can be used to make better decisions. Focusing on agro-food logistics management, this PhD thesis investigates how to utilize available data/information in agro-food supply chains to improve logistics processes. Using the Dutch floriculture supply chain network as the case study platform, this research particularly deals with logistics challenges caused by the increasing trend of customer orders in the agro-food sector: high frequency, numerous order lines of small volumes, and short required delivery lead-times. The first part of the thesis helps readers gain a better understanding of the value of data/information in supply chain decision-making. First, it presents a generic framework to assess the value of information (VOI) in supply chain decisions along the four primary dimensions: “supply chain decisions”, “information”, “modelling approach”, and “supply chain context”. Second, it extends the “supply chain decisions” and “information” dimensions to propose a multi-level framework that explains how data and big data are actually linked to supply chain decisions at different levels, i.e., short-term or long-term and individual-firm level or supply-chain level. The second part of the thesis applies the VOI framework and the multi-level framework to the case of the Dutch floriculture sector. At the individual-firm level, the thesis examines the uses of common information types at agro-food suppliers and crossdocking facilities. For suppliers, the thesis proposes a data-driven process redesign, which uses historical customer orders to redesign the order fulfilment process for a higher delivery service level and a lower operational cost. For cross-docking distribution, the value of inbound and outbound information are examined in enhancing cross-docking internal processes. At the supply-chain level, the thesis demonstrates the value of the booming data collected from the tracking & tracing systems in the sector. It is shown that the data can support strategic and real-time supply chain coordination and collaboration to improve the efficiency and effectiveness of logistics processes in the sector.

An integrated approach of fuzzy AHP and fuzzy TOPSIS in modelling contractual design of supply chain inventory coordination mechanism

Article

Full-text available

Jan 2019

An integrated approach of Fuzzy AHP and fuzzy TOPSIS in modelling Contractual design of supply chain inventory coordination mechanism.

Article

Full-text available

Jan 2019

Abstract: In recent decades, firms are facing the challenges of lack of inventory coordination issues in multi echelon inventory coordination environment. Contractual design of supply chain inventory coordination mechanism (SCICM) are necessary for effective and efficient SCM and not merely better profit distribution within supply chain trading partners (SCTPs), but effective coordination mechanism is key necessity for complex supply flow network. SC structure consists of SV and MB, SC for a multi products flow network considered. SCTPs can be coordinated by better contractual design for perfect SCICM. These criteria are namely controllable lead time and asymmetric information; common replenishment epoch; inventory-level-dependent demand rate; VMI system with stock-out cost sharing; sales rebate contract and VMI. FAHP and FTOPSIS approaches can be used to integrate more consistent evaluation and prioritisation of SCTPs based on five SCICM criterion determined by factor analysis of survey data and expert opinion of retail industry. FAHP is used to calculate relative weight of each SCICM criteria and SCP is ranked based on closeness coefficient. Calculated for each partners are using FTOPSIS.

Coordinating contracts for VMI systems under manufacturer-CSR and retailer-marketing efforts

Article

May 2019
INT J PROD ECON

This paper studies the coordination of a two-echelon consignment channel in vendor managed inventory systems. The market demand is affected by retailer's marketing effort, retail price, manufacturer's CSR (Corporate Social Responsibility) effort and the changes in economic and business conditions. We propose four contracts that combine revenue and cost sharing to effectively coordinate the channel members which are referred to as “revenue and production cost sharing”; “revenue, production cost and marketing cost sharing”; “revenue, production cost and CSR cost sharing” and “revenue, production cost, marketing cost and CSR cost sharing”. Each contract is represented by a fraction of sharing (α). In the deterministic demand, our analysis show that these sharing contracts lead to Pareto improvements in comparison with the wholesale price contract for some ranges of α values. Furthermore, we found that the first three contracts cannot coordinate the channel while the last contract leads to a perfect coordination of the channel. In the stochastic demand, numerical examples show that the sharing contracts where retailer shares the production cost of all consigned stocks always lead to Pareto improvements and the channel can be perfectly coordinated if the channel members share all of the costs. In contrast, the Pareto improvements may not always be achieved with sharing contracts where retailer shares the production cost of sold stocks and none of them can coordinate the channel. From managerial insights, our research could help channel managers to improve the CSR implementation as well as the channel performance in the short and long term.

Optimal ( z , Z )-type contracts for vendor-managed inventory

Article

Aug 2018
INT J PROD ECON

We examine (z, Z)-type contracts for vendor-managed inventory (VMI) between a supplier and a retailer from the retailer's perspective. A (z, Z) VMI contract specifies minimum and maximum inventory levels and their corresponding under- and over-stocking penalties. The retailer chooses the contract parameter values and the supplier decides whether to accept the contract and, if accepts, manages the inventory at the retailer and makes replenishment decisions. The supplier accepts the contract if his cost under VMI is no larger than his reservation cost. We provide the optimal (z, Z) VMI contract for the retailer and the corresponding optimal replenishment decisions for the supplier and show that the optimal (z, Z) VMI contract can coordinate the supply chain under mild conditions. We also examine a VMI contract with stockout penalty and holding-cost sharing, which is a special type of (z, Z) contract, and find that it may perform well compared with the optimal (z, Z) VMI contract, although its performance may depend on several factors such as the supplier's reservation cost.

The value of information in supply chains decisions

Article

Jan 2018

The purpose of this paper is to provide a structured overview of the value of information in different supply chain decisions and to identify a research agenda based on the current state of research on the topic. The paper uses the systematic literature review methodology to review journal articles published in the 12-year period from 2006 to 2017. Each selected study is analyzed using a rigorous review framework of four primary dimensions, including “supply chain decisions”, “information”, “modelling approach”, and “context”. The review of articles shows that the current literature is rich in assessing the value of information in inventory decisions, yet insufficient in other supply chain areas such as facility, transportation, sourcing, and pricing. In addition, the value of information is subject to contextual supply chain parameters and varies in accordance with the characteristics of the information (such as accuracy, timeliness, and completeness). Furthermore, the focus of the existing literature is on “information availability” in supply chain decisions, and the impact of important information characteristics on the value of information has not been studied extensively. The research on information timeliness and its influence on supply chain performance is especially limited. Based on the discussion and results of our review, a research agenda is offered and sample research questions are discussed.

The value of information in supply chain decisions: A review of the literature and research agenda

Article

Full-text available

Apr 2018
COMPUT IND ENG

Contracting for vendor‐managed inventory with a time‐dependent stockout penalty

Article

May 2020
Int Trans Oper Res

We examine vendor-managed inventory contracts in a (Q, r) inventory system between a supplier and a retailer, in which a stockout penalty is charged to the supplier based on the length of the time period during which stockouts occur at the retailer. Linear and quadratic forms of the time-dependent stockout penalty are considered. For the deterministic demand case, we find that the quadratic form of time-dependent stockout penalty is equivalent to a proportional stockout penalty per unit short per unit time. For the stochastic demand case, we provide the exact cost expressions for the supplier and the retailer with a linear time-dependent stockout penalty. We also discuss how the stochastic model can be extended to the case with a quadratic time-dependent stockout penalty when there is at most one outstanding replenishment order at any point of time. We provide several interesting computational results.

Vendor-managed inventory: A literature review on theoretical and empirical studies and future research directions

Article

Jan 2015

Vendor-managed inventory (VMI) is a business practice in which the supplier manages the inventory at the customer's premises and makes replenishment decisions. VMI has been extensively studied over a short period of time since it was successfully implemented in the industry in the late 1980s. In this paper, we classify and review theoretical and empirical studies on VMI. In particular, we provide three classifications of theoretical papers focusing on the contractual agreement between supply chain partners, drivers of the benefits of VMI, and research approaches, while we classify empirical papers based on their research purposes and methodologies. One of our findings is that most theoretical studies examine event-based VMI contracts such as (z, Z)-Type contracts, while the penalties/rewards are based on long-Term performance in many VMI agreements observed in practice. We also find that most theoretical studies focus on cost reductions from VMI and their drivers, while empirical studies report various benefits of VMI such as lower inventory and fewer stockouts. We suggest several future research directions based on our literature review.

A Sustainable Supply Chain under VMI-CS Agreement with Withdrawal Policies for Imperfect Items

Article

Sep 2022
J CLEAN PROD

Supply Chain (SC) coordination, quality requirements, and environmental issues are the main areas of interest within the field of inventory management. Few studies have integrated these concepts into an inventory problem despite its overwhelming necessity. In this direction, this paper deals with a vendor-buyer SC under the Vendor-Managed Inventory with Consignment Stock (VMI-CS) agreement. According to the agreement, the vendor bears the buyer's financial holding cost in return for the storage of products in the buyer's warehouse. Further, each shipment involves a random fraction of repairable items, which need to be withdrawn from the inventory system. Unlike the existing literature, when repair policy is evaluated not to be profitable, these items can either be salvaged or scrapped in the present problem. In other words, this study aims at providing a decision support model to find the optimal withdrawal policy as a joint quality and lot-sizing policy. To fulfill sustainability criteria, carbon emissions are incorporated into the total cost of SC by considering carbon tax and cap-and-trade regulation. The optimum solution is found through an analytical algorithm. Finally, a numerical study is conducted to illustrate the applicability of the models and gain managerial insights. The results show that the performance of VMI-CS for all withdrawal policies is superior to traditional mechanism, but its cost-saving sharing has to improve. In addition, the sensitivity analyzes reveal that the fraction of imperfect items greatly affects the optimal withdrawal policy. Finally, adopting carbon regulations does not seriously affect the optimal withdrawal policy and inventory decisions but causes a relatively much increase in the total cost.

Supply chain coordination in vendor-managed inventory systems with stockout-cost sharing under limited storage capacity

Article

Jan 2016
EUR J OPER RES

We examine vendor-managed inventory (VMI) systems with stockout-cost sharing between a supplier and a customer using an EOQ model with shortages allowed under limited storage capacity, in which a stockout penalty is charged to the supplier when stockouts occur at the customer. In the VMI systems the customer and the supplier minimize their own costs in designing a VMI contract and making replenishment decisions, respectively. We compare the VMI systems with an integrated supplier-customer system where the supply chain total cost is minimized. We show that VMI with stockout-cost sharing and the integrated supplier-customer system result in the same replenishment decisions and system performance if and only if the supplier's reservation cost is equal to the minimum supply chain total cost of the integrated system. On the other hand, we also show how VMI along with fixed transfer payments as well as stockout-cost sharing can lead to the supply chain coordination regardless of the supplier's reservation cost. We also provide several interesting computational results. © 2015 Elsevier B.V. and Association of European Operational Research Societies (EURO) within the International Federation of Operational Research Societies (IFORS).

A vendor-managed inventory model for a three-layer supply chain considering exponential demand, imperfect system, and remanufacturing

Article

Full-text available

Jan 2024
ANN OPER RES

This paper presents a vendor-managed inventory model for a three-layer supply chain comprised of suppliers, manufacturers, and retailers. This model considers an imperfect production system with a deterministic percentage of defective and deteriorated items, exponential demand for perishable products, and operational costs. The VMI model maximizes the benefits, assuming a Stackelberg approach to find the optimal values of replenishment lot sizes, production rates, selling prices, and product cycle length. A solution algorithm is developed to find the optimal solutions. A case study of the Dairy Industry for highly perishable products is provided to illustrate the applications, evaluate the performance, and obtain managerial insights. The results show that the percentage of defective and deteriorated items and remanufacturing rates are crucial in replenishment, production, and selling policies. The VMI agreement includes remanufacturing defective products to obtain new dairy derivates. The deteriorated products can be sold as near-expired products or inputs for compost, fertilizers, etc. Finally, some conclusions and future research lines are provided.

Consignment based integrated inventory model for deteriorating goods with price- and green-sensitive demand

Article

Dec 2023
SADHANA-ACAD P ENG S

Now-a-days, investment in greening in the process of manufacturing a product is extremely important for a sustainable supply chain management. Consignment stock policy have been studied for last four decades by many researchers in the development of a supply chain model. In this study, a green supply chain model for deteriorating goods with one seller and one buyer is established. The extent of greening improvement and the selling price have an impact on demand. There are two generalized green supply chain models established, one with and one without consignment stock policy. To compare the outcomes of the two models, a comprehensive computational research is conducted. The sensitivity analysis for key model-parameters is also carried out and several managerial insights are derived from it.

A Robust Tri-Objective Optimization to Supply Chain Configuration under Vendor-Managed Inventory Policy and Supply Chain Visibility

Article

Full-text available

Mar 2023
EXPERT SYST APPL

This paper presents a novel tri-objective robust Mixed-Integer Linear Programming (MILP) to a two-echelon supply chain configuration. It simultaneously considers the Vendor-Managed Inventory (VMI) policy and the Supply Chain Visibility (SCV), under uncertain demand. The objectives are to concurrently maximize the total visibility, minimize the number of deficient products and minimize the total cost. The LP-metric is then applied to deal with the tri-objectiveness of the model. The results show that the proposed approach successfully establishes robustness by deteriorating the optimal values of the objective functions as the cost of robustness. A sensitivity analysis reveals that the level of uncertainty has the greatest impact on the network's cost and deficiency of objective functions. However, the greatest effect on the SCV function is the change in the lower visibility threshold parameter. Moreover, the value of the deficiency rate parameter has the least impact on all three objective functions and has no impact on the visibility of the supply chain.

Multi-objective vendor managed inventory system with interval type-2 fuzzy demand and order quantities

Article

Full-text available

May 2021

Purpose The proposed IT2FMOVMI model intends to concurrently minimize total cost and warehouse space for the single vendor-retailer, multi-item and a consolidated vendor store. Regarding demand and order quantities with the deterministic and type-1 fuzzy numbers, we have also formulated the classic/crisp MOVMI model and type-1 fuzzy MOVMI (T1FMOVMI) model. The suggested solution technique can solve both crisp MOVMI and T1FMOVMI problems. By finding the optimal ordered quantities and backorder levels, the Pareto-fronts are constructed to form the solution sets for the three models. Design/methodology/approach A multi-objective vendor managed inventory (MOVMI) is the most recognized marketing and delivery technique for the service provider and the retail in the supply chain in Industry 4.0. Due to the evolving market conditions, the characteristics of the individual product, the delivery period and the manufacturing costs, the demand rate and order quantity of the MOVMI device are highly unpredictable. In such a scenario, a MOVMI system with a deterministic demand rate and order quantity cannot be designed to estimate the highly unforeseen cost of the problem. This paper introduces a novel interval type-2 fuzzy multi-objective vendor managed inventory (IT2FMOVMI) system, which uses interval type-2 fuzzy numbers (IT2FNs) to represent demand rate and order quantities. As the model is an NP-hard, the well-known meta-heuristic algorithm named NSGA-II (Non-dominated sorted genetic algorithm-II) with EKM (Enhanced Karnink-Mendel) algorithm based solution method has been established. Findings The experimental simulations for the five test problems that demonstrated distinct conditions are considered from the real-datasets of SAPCO company. Experimental study concludes that T1FMOVMI and crisp MOVMI schemes are outclassed by IT2FMOVMI model, offering more accurate Pareto-Fronts and efficiency measurement values. Originality/value Using fuzzy sets theory, a significant amount of work has been already done in past decades from various points of views to model the MOVMI. However, this is the very first attempt to introduce type-2 fuzzy modelling for the problem to address the realistic implementation of the imprecise parameters.

Consignment stock policy in an integrated vendor-buyer model for deteriorating item with stock dependent demand under buyer’s space limitation

Article

Jan 2021

In this paper, a single-vendor single-buyer integrated inventory model for a deteriorating item with consignment stock policy is developed, assuming that the market demand is stock dependent and there is space limitation on the buyer’s storage capacity. Both equal and unequal shipments from the vendor to the buyer are considered. The effects of the buyer’s space capacity on the average cost, shipment size, and production batch are studied through numerical example. It is deduced that production rate is the key factor to determine whether to use equal or unequal shipment strategy. Sensitivity analysis is carried out to establish the robustness of the solutions of the models developed.

What is the value of delivering on time?

Article

Jun 2020

Purpose Delivery punctuality is essential in supply chain management, yet the cost of untimely delivery is usually assumed to be given or based on intuition and not quantified by facts. Design/methodology/approach The authors used a data set containing detailed transaction data for a nine-year period on orders and deliveries of sport goods. The methodology is based on applying a polynomial distributed lag model to longitudinal data on supply chain transactions. Findings The results indicate that small delivery delays up to two weeks decrease the sales by maximum 10% during a period of 3–4 weeks. Longer delays, up to 45 days, have a larger negative effect on sales, which can also last longer. For this case company, the estimated lost sales due to late deliveries (=5 days) were 5.1% of the delivery value. The longer delays got, the large the cost was: delays at least 45 days long were the most costly causing almost 40% of the estimated lost sales. Practical implications This study offers a methodology for quantifying lost sales due to delivery delays and estimating how long the poor delivery performance affects retailers' order behaviour. Originality/value The results give a quantitative decision-making tool for supply chain managers to estimate the profitability of investments in the supply chain performance, especially on improving punctuality.

Quantification of Consigned Inventory in Relation to the Czech Republic

Article

Full-text available

Jan 2020

Consignment stock is a useful Inventory Management technique based on partnership between vendor and buyer in order to improve supply chain performance. However, there is just a little known, how many companies implemented the Consignment stock concept, what is the value of their consigned inventory and much more. These questions brought us to the topic, whether it is possible to quantify the amount of consigned inventory in relation to the Czech Republic. We were able to work with the official information about consigned inventory between the years 2009 and 2018 collected and provided by the Czech Statistical Office. A purpose of our work is to determine the proportion of exported and imported consigned inventory to the total exported and imported inventory from the Czech Republic and to find out any relation between these two trades. This paper is an extension of our former works related to the Consignment stock implementation in the Czech Republic. So far, in previous works, we collected information from a few qualitative and quantitative researches exploring more information about advantages, disadvantages, obstacles and benefits related to the CS adoption.

Effectiveness of consignment stock policy under space limitations and deterioration

Article

Feb 2020

In joint economic lot-sizing problem for a two-echelon supply chain, the vendor delivers the entire production lot to the buyer by dividing it into a number of sub-batches, and ships each batch as soon as the buyer's inventory reduces to zero. On the contrary, in a consignment stocking policy, the vendor ships each sub-batch as soon as it is produced. These two generalised situations are modelled in this paper considering warehouse space limitations for the channel members (i.e. vendor and buyer) under both n-shipment and consignment stock policies where the items suffer from deterioration. Optimal results obtained by Genetic Algorithms (GAs) are compared through numerical examples to establish the superiority of one model over the other. The situations are also identified when one of the strategies would outperform another.

Introducing a Unique Inventory Control Framework for Centralized VMI and JIT Production

Article

Full-text available

Jan 2019

The purpose of this research is to develop a new Information Fractal Structure (IFS) framework to facilitate communication and collaboration between centralized Vendor-Managed-Inventory (VMI) and Just-In-Time production to optimize inventory and logistics cost throughout the supply network. The proposed framework is conceptually developed, validated and implemented using mathematical and simulation modelling. Experimental factorial design and statistical techniques (MANOVA) are used to generate and analyze the results. The results demonstrated that the application of the proposed IFS provided a new effective collaboration protocol between centralized VMI and core manufacturer. Furthermore, the IFS led to an increase in both collaboration and integration and improve the process of sharing information across the network, which has proven to be a problematic area for industrialists. Keywords: Fractal supply network, supply network modelling, inventory optimization, centralized Vendor-Managed-Inventory, Just-In-Time production

Genetic Algorithm Parameters in a Vendor Managed Inventory Model

Article

Full-text available

Jan 2019

Cahyono sigit Pramudyo

To handle the information exchange problem between a vendor and a retailer, Vendor Managed Inventory (VMI) provides a good approach to handle the problem. Information exchanges between both sides enhance supply chain performance. In a previous research work, a stochastic model for one vendor and one retailer has been developed. Simulation optimization using genetic algorithm (GA) has been use to solve the problem. There are 2 important parameters in genetic algorithm (probability of mutation and probability of crossover). This research aims at analyzing relations between GA parameters and optimal solutions. This research compares many combinations of GA parameters and the effects on optimal solutions and time to reach the optimal solutions. This research concludes that the best combination reaches the optimal solutions. Unfortunately, the best combination is only suitable for a certain condition and increasing/reducing GA parameters values do not automatically improve the optimal solutions.

Inventory and Production Dynamics in a Discrete-Time Vendor-Managed Inventory Supply Chain System

Article

Full-text available

Sep 2018
DISCRETE DYN NAT SOC

This paper presents some analytical results on production and order dynamics in the context of a discrete-time VMI supply chain system composed of one retailer and one manufacturer. We firstly derive the lower bound and upper bound on the range of inventory fluctuations for the retailer under unknown demand. We prove that the production fluctuations can be interestingly smoothed and stabilized independent of the delivery frequency of the manufacturer used to satisfy the retailer’s demand, even if the retailer subsystem is unstable. The sufficient and necessary stability condition for the whole supply chain system is obtained. To further explore the production fluctuation problem, the bullwhip effect under unknown demand is explored based on a transfer function model with the purpose of disclosing the influences of parameters on production fluctuations. Finally, simulation experiments are used to validate the theoretical results with respect to inventory and production fluctuations.

Revenue sharing contract for a VMI with one for one period policy

Article

Full-text available

Jul 2018

In this article, we design a revenue-sharing contract to coordinate inventory control decisions in a serial supply chain consisting of one supplier, one vendor, and one retailer. We assume that the retailer faces Poisson demand and his unsatisfied demands will be lost. The retailer applies one-for-one period policy in which he constantly places an order for one unit of product to the vendor in a predetermined time interval which results in a deterministic demand for the vendor. Vendor orders the required quantity from supplier which will be immediately received at the vendor’s warehouse. Solution procedures are developed to find the equilibrium in the vendor managed inventory program with a revenue-sharing contract. Furthermore, we obtain the optimal order cycle for the retailer and the vendor which minimizes the supply chain’s total cost.

The coordination mechanisms of emergency inventory model under supply disruptions

Article

Full-text available

Aug 2018
SOFT COMPUT

This paper develops a cooperative emergency inventory model to deal with supply disruptions. To achieve a cooperative state between the two sides in supply chain, the game theory is used and three coordination mechanisms are proposed. With the emergency inventory method which has been established, many tests of numerical experiments are made. The aim is to find the optimal mechanism so that the conditions of three mechanisms need to meet are analyzed. Results show that the total profits of the whole supply chain are unchanged in return mechanism. In cost-sharing mechanism, the manufacturer’s profits are smaller than the profits before coordination, and the supplier’s profits are greater than the former, but total profits of the whole supply chain become larger. The proposed model with the introduction of a second manufacturer mechanism performs best, which can make up the expenses by using the new joined manufacturers. It also can help the manufacturers respond to the supply disruptions effectively and that will not harm the profits of both sides.

Pricing and inventory decisions in a vendor managed inventory system with revenue sharing contract

Article

Full-text available

Jan 2018

In this paper, we design a revenue sharing contract to coordinate pricing and inventory control decisions in a serial supply chain consisting of one supplier, one manufacturer and one retailer. We assume that the retailer faces Poisson demand and his unsatisfied demands will be lost. The retailer applies one-for-one period policy in which he constantly places an order for one unit of product to the manufacturer in a predetermined time interval which results in a deterministic demand for the manufacturer. Solution procedures are developed to find the equilibrium in the Vendor Managed Inventory (VMI) program with a revenue sharing contract, in which no party is willing to deviate from for the sake of maximizing his own profit. Furthermore, we formulate the total profit of the system and obtain the optimal retail price and order cycle for the retailer and the inventory policy of manufacturer which maximizes the supply chain’s total profit and at the end we will highlight the revenue sharing contract performance. © 2018 by the authors and 2018 Growing Science Ltd. All rights reserved.

One vendor-one retailer in vendor managed inventory problem with stochastic demand

Article

Jan 2017

One of the basic problems in supply chain operation is lack of information exchanges related to inventory between vendor and retailer. Vendor managed inventory (VMI) provides a good approach to handle this problem. VMI has been proven to reduce cost and improve customer service level. This research aim is to develop a VMI model for the system with one vendor and one retailer to minimise the total system cost. The model is developed for (t, q) policy where the retailer's cycle time is fixed. Due to the complexity nature of the model, simulation-optimisation using genetic algorithm is employed to determine the decision variables which are the retailer's lot size, the vendor's lot size, and the number of replenishments in a vendor cycle. Numerical experiments are conducted to show how the proposed model works. Sensitivity analysis is also conducted to understand the effects of some input parameters.

One vendor-one retailer in vendor managed inventory problem with stochastic demand

Article

Jan 2017

Comparing different coordination scenarios in a three-level supply chain system

Article

Nov 2016

The consignment stock (CS) policy, independently or coupled with vendor managed inventory (VMI), has been practised by businesses and shown to be profitable. It helps to reduce or eliminate out-of-stock instances caused by fluctuations in demand. CS brings several benefits to collaborating parties. Unlike the two-level supply chain models in the literature, this paper considers a three-level supply chain that consists of a supplier, a vendor and a buyer with CS policy agreements. The paper also examines four coordination scenarios (a combination of traditional and CS) in conjunction with a payment scheme between adjacent parties. Nine coordination cases (models) are provided. A sensitivity analysis is performed to study the effects of some parameters on the performance of the developed models. Most of the results showed that a combination of traditional and CS policies returned a higher total system profit.

Consignment stock policy with unequal shipments and process unreliability for a two-level supply chain

Article

Sep 2016

This paper considers a vendor managed inventory model with consignment stock policy in which a single vendor delivers a single product to a single buyer in unequal-sized shipments. The vendor?s production process may produce some defective items during a production run. The buyer performs a screening process immediately after receiving each delivery from the vendor and the vendor bears the warranty cost of defective item, if any. The buyer either scraps or repairs the defective items by sending them to a repair factory. The average expected profit of the integrated system is derived using renewal reward theorem and a solution procedure is suggested to determine the optimal shipment policy of the vendor. Numerical examples are taken to determine both the equal and unequal shipment policies and compare their relative performances.

How much does VMI better than RMI in a global environment?

Article

Oct 2015
INT J PROD ECON

A deteriorating consigned vendor-buyer model with stock-, freshness- and dynamic price-dependent demand under space limitation

Article

Dec 2024

Retailer- vs. Vendor-managed inventory in the presence of consumer response to retail stockouts

Article

Feb 2024

Jun Ru

Dynamic sales prediction with auto-learning and elastic-adjustment mechanism for inventory optimization

Article

Aug 2023
INFORM SYST

Bilevel Programming for Manufacturers Operating in an Omnichannel Retailing Environment

Article

Jan 2022

In this article, we present a joint production, pricing, and inventory control problem that can help manufacturers manage revenue in an omnichannel environment. This article puts forward a multiperiod Stackelberg game between a manufacturer and a retailer, assuming the former to be the leader. The leader–follower game is formulated as a mixed-integer nonlinear bilevel optimization problem wherein both players seek to maximize their respective profits. The article envisions an omnichannel retailing environment where online, offline, direct, and drop-shipping channels coexist. It then investigates how enabling showrooming and webrooming on the drop-shipping channel account can affect the supply-chain profitabilities. The analyses suggest that when the customers are aided with showrooming and webrooming services and are allowed to place drop-shipping orders from retailers’ stores, additional profit can be generated in the supply chain. To solve the proposed bilevel optimization problem, we investigate single-level reduction using Karush–Kuhn–Tucker conditions and hierarchical optimization technique based on the simulated annealing and randomized decomposition solver. To assess the efficacy of the solution techniques, a comparative analysis is carried out. Thereafter, with the aid of numerical experiments and sensitivity analyses, this article draws the key managerial insights for manufacturers.

Influence of Value Chain Development on Agribusiness Performance in Osun State

Conference Paper

Full-text available

May 2017

Oyekunle Oyelakin

مدل مدیریت موجودی توسط فروشنده با در نظر گرفتن انتقال کالا بین انبار خرده فروشان با وجود یک تامین کننده و چند خرده فروش

Article

Full-text available

Sep 2018

مدیریت موجودی توسط فروشنده رویکردی مداوم برای تعیین مقدار و زمان ارسال سفارش به خرده‌فروشان توسط تأمین‌کننده است که با تبادل اطلاعات بین خرده‌فروشان و تأمین‌کننده انجام می‌پذیرد. در این پژوهش مدلی جدید بر اساس سیستم (E‌O‌Q) e‌c‌o‌n‌o‌m‌i‌c o‌r‌d‌e‌r q‌u‌a‌n‌t‌i‌t‌y با افزودن شرط امکان جابه‌جایی کالا بین انبار خرده‌فروشان به مسئله‌ی مدیریت موجودی توسط فروشنده توسعه داده می‌شود و سپس به بررسی اثر آن بر هزینه‌های موجودی و حمل و نقل پرداخته می‌شود. هدف به دست آوردن مقدار سفارش بهینه و انتخاب خرده‌فروشانی است که می‌توانند به عنوان واسطه برای انتقال کالا به خرده‌فروشان دیگر انتخاب شوند به گونه‌یی که هزینه‌های موجودی و حمل و نقل کمینه شود. مدل ارائه شده با در نظر گرفتن ۳۰ خرده‌فروش با استفاده از L‌I‌N‌G‌O حل شده است و مقایسه‌ی هزینه‌های موجودی و حمل و نقل با در نظر گرفتن فرض جابه‌جایی کالا بین خرده‌فروشان نشان می‌دهد که هزینه‌ها به صورت قابل قبولی کاهش می‌یابند.

Application of Consignment to Three Stage Supply Chain

Article

Jul 2018

Purpose - The study investigates the impact of consignment on the economic performance in the supply chain with three stages. Through the analysis on distinct forms of consignment application, this study intends to answer to the question of how the consignment should be used in the multi-stage supply chain. Research design, data, and methodology - The proposed mathematical model represents the supply chain system with a manufacturer, a wholesaler, and a retailer. Three different forms of consignment application are considered depending on which stages adapt the consignment, and their system profits are compared with the traditional non-consignment system in numerical examples. Results - The numerical examples show that the serial consignment application performs better than any other forms of consignment as well as the non-consignment system. The additional analysis indicates that the system profit is significantly sensitive to the consignment rate. Conclusions - The outcome of this study implies the potential of consignment to improve the system performance even in the multi-stage supply chain system. Meanwhile, each supply chain member's preference to the specific form of consignment application could be different depending on which stage he has. All the supply chain members should jointly determine the appropriate consignment rates to obtain the best system performance.

The working capital management based on vendor relationship——“icing on the cake” or “timely help”

Article

Apr 2018

Purpose Under the guidance of Professor Wang Zhuquan’s channel-based working capital management concept, this paper, using a sample of A-listed companies from 2007 to 2013, aims to explore the possibility of measuring vendor relationships from the supply chain (channel) perspective for the first time, making universal testing for working capital management based on vendor relationships. Through systematically answering the question of who is the biggest beneficiary of working capital management based on vendor relationships and to discuss whether suppliers are more willing to provide “timely help” to weak enterprises or to exert an “icing on the cake” effect on strong enterprises, this paper provides a systematic explanation of the causes and economic consequences of working capital management based on vendor relationships. Design/methodology/approach The authors constructed three models to test the hypotheses of this study. Model (1) explores the cause of working capital management based on vendor relationship from three angles: market position, industry competition degree and property right. Models (2) and (3) examine the economic consequences of working capital management based on vendor relationship from the two aspects of alleviating financing constraints and improving enterprises’ sustained growth capability. Findings Working capital management based on vendor relationships has a more significant “timely help” effect on weak companies, which was proved by the inclination of companies with lower market positions, higher industrial competition and private ownerships to adopt working capital management based on vendor relationships. From the perspective of economic consequences, while China’s listed companies benefit generally from working capital management based on vendor relationships, the weak enterprises are the biggest beneficiaries. Based on vendor relationships, the weak enterprises can relieve financing constraints and improve continuous growth capacity. It provides further evidence that suppliers could provide “timely help” to weak enterprises. Originality/value The results of this study find that the competition between supply chains replaces the competition among enterprises, and suppliers are more willing to provide “timely help” to weak enterprises rather than to exert an “icing on the cake” effect on strong enterprises. In addition, the working capital management based on vendor relationships facilitates the cooperation of enterprises and suppliers and improves the overall efficiency of the supply chain.

A New Hybrid Method for Optimizing Vendor-Managed Inventory Model

Article

Mar 2018

Vendor managed inventory with consignment stock for supply chain with stock- and price-dependent demand

Article

Feb 2017

This paper presents a single vendor–single buyer coordinated model. The vendor produces a single deteriorating item and transfers it to the buyer in equal shipments. The model is based on vendor managed inventory with consignment stock (VMI-CS) agreement in which the vendor uses the buyer’s warehouse. The buyer stocks items both on his shelf and in his warehouse. The demand is assumed to be linearly sensitive to inventory level and selling price. The objective is to determine variables that maximise the total profit. An exact solution procedure is proposed to find the optimal solution. Numerical results show that supply chain members will benefit from the advantages of economies of scale in coordinated model with VMI-CS policy.

Quantifying the Benefits of Continuous Replenishment Program for Partner Evaluation

Article

Feb 2017
INT J PROD ECON

This paper develops a data-driven model that quantifies the benefits of supply chain collaboration initiatives such as a continuous replenishment program (CRP). CRP is a well-established supply chain collaboration program that is widely used in business. The model computes the cost savings of CRP for both partners involving inventory holding, transportation and ordering/handling cost components. The savings drivers associated with each cost component are identified and used to quantify the impact of CRP. The model is applied in a healthcare supply chain case study where a manufacturer seeks to estimate the cost savings of a business relationship with a distributor. The results indicate that CRP reduces the total cost of the supply chain by 19.1%. In this instance, the distributor gains disproportionately more savings in the shared cost components. The variability and sensitivity of cost savings across the network reveal the supply chain parameters that affect the partner savings.

Optimal coordination strategy of dynamic supply chain based on cooperative stochastic differential game model under uncertain conditions

Article

Oct 2016
APPL SOFT COMPUT

The optimal coordination strategy is achieved when the dynamic supply chain profit is maximized. The profit of dynamical supply chain is decided by the corresponding effort level of each node enterprise. This paper presents a cooperative stochastic differential game model to research the optimal coordination strategy of a dynamic supply chain under uncertain conditions and studies how to coordinate the effort level of node enterprise to maximize supply chain profit. For this purpose, a cooperative stochastic differential game model of the enterprises’ effort level is constructed, and the optimal solution of the model is solved by converting it to the solution of the equivalent stochastic partial differential equation. As a result, the optimal strategy of a local node enterprise is achieved. Considering the gap between the independent decision of each node enterprise and the optimal decision of the supply chain system, the coordination mechanisms of the dynamic supply chain, including the temporary static allocation mechanism and the compensation mechanism, are given to narrow the gap to achieve the optimal coordination strategy under uncertain conditions.

Inventory Model in Dual Channel Supply Chain Considering Drop Shipping

Working Paper

Full-text available

Aug 2016

Multiple-vendor, multiple-retailer based vendor-managed inventory

Article

Full-text available

Mar 2016
ANN OPER RES

Vendor-managed inventory is a coordinated system where a vendor decides about the retailer’s replenishment quantity and time. This work studies a two-echelon distribution work composed of multiple vendors and retailers in traditional and vendor-managed inventory systems where unsatisfied demands are lost sales. We also consider that the retailers’ demand is stochastic following a uniform distribution. The mathematical models are developed and applied in vendor-managed inventory and traditional systems. Under the traditional supply chain, the vendor incurs the cost of holding and production setup, while a retailer incurs expenses for inventory holding, ordering, transportation and lost sales. In a vendor-managed inventory system, as the vendor is responsible for his retailers, the retailer’s costs are transferred to the vendor. We aim to identify benefits of vendor-managed inventory. The total cost per unit time is used as a comparable measure between vendor-managed inventory and traditional systems. Numerical examples and a sensitivity analysis of key parameters include the vendor’s setup cost and holding cost; the retailer’s transportation and ordering costs are presented in both vendor-managed inventory and traditional systems. The results illustrate that vendor-managed inventory total system inventory cost is lower than a traditional system where shortage is allowed.

Optimizing a Vendor Managed Inventory (VMI) Model Considering Delivering Cost in a Three echelon Supply Chain Using Two Tuned parameter Meta-heuristics

Article

Full-text available

Nov 2014

In the retailer-supplier partnerships, the vendor-managed inventory (VMI) is one of the important policies in the supply chain management (SCM) to reduce the bullwhip effect. As there is a lack of study on the central warehouse via delivering cost in VMI literature, this paper presents a vendor-managed inventory (VMI) model in SCM including single vendor, multi-retailer, and single-warehouse. While the vendor confronts with two constraints, namely the number of orders and budget, the purpose of this research is to find order size, the shortest possible route, and replenishment frequencies for the vendor and the retailers to minimize the total inventory cost. As the proposed model is an NP-hard problem, a meta heuristics namely particle swarm optimization (PSO) is employed to optimize the proposed model. Since there is no available benchmark for evaluation of the proposed method, a genetic algorithm (GA) is used to validate and verify the solution presented by PSO. Moreover, Taguchi method in the design of experiments calibrates the parameters of the algorithm to provide the reliable solution. Finally, the conclusion and further studies are presented.

An analysis of manufacturer benefits under vendor-managed systems

Article

Full-text available

Apr 2010

Vendor-Managed Inventory (VMI) has attracted a lot of attention due to its benefits such as fewer stock-outs, higher sales, and lower inventory levels at the retailers. Vendor-Managed Availability (VMA) is an improvement that exploits the advantages beyond VMI. This article analyzes the benefits beyond information sharing and assesses the motivation for the manufacturer (vendor) behind joining such a program. It is shown that such vendor-managed systems provide increased flexibility in manufacturer's operations and may bring additional benefits. An analysis is presented on how the system parameters affect the profitability and determine the conditions that make the vendor-managed system a viable strategy for the manufacturer.

Coordinating Production and Delivery Under a (z, Z)-Type Vendor Managed Inventory Contract, Working Paper

Article

Full-text available

Apr 2001
M&SOM-MANUF SERV OP

This paper models a type of vendor-managed inventory (VMI) agreement that occurs in practice called a (z, Z) contract. We investigate the savings due to better coordination of production and delivery facilitated by such an agreement. The optimal behavior of both the supplier and the retailer are characterized. The optimal replenishment and production policies for a supplier are found to be up-to policies, which are shown to be easily computed by decoupling the periods when the supplier outsources from those when the supplier does not outsource. A simple application of the newsvendor relation is used to define the retailer's optimal policy. Numerical analysis is conducted to compare the performance of a single supplier and a single retailer operating under a (z, Z) VMI contract with the performance of those operating under traditional retailer-managed inventory (RMI) with information sharing. Our results verify some observations made in industry about VMI and show that the (z, Z) type of VMI agreement performs significantly better than RMI in many settings, but can perform worse in others.

The Inventory Benefit of Shipment Coordination and Stock Rebalancing in a Supply Chain

Article

Full-text available

Feb 2002

In this paper, we examine two information-based supply-chain efforts that are often linked to Vendor-Managed Inventory (VMI) programs. Specifically, we consider a supplier serving multiple retailers located in a close proximity. The first effort uses information on the retailers' inventory positions to coordinate shipments from the supplier to enjoy economies of scale in shipments, such as full truckloads.The second effort uses the same information for eventual unloading of the shipments to the retailers to rebalance their stocking positions. How much benefit do we gain from such initiatives? What are the relative benefits of the two initiatives? What are the drivers of such benefits? This paper seeks answers to these questions.

An investigation of vendor-managed inventory application in supply chain: The EOQ model with shortage

Article

Full-text available

Jul 2010

Recent researches have shown the importance of improving the supply chain competitiveness by means of strategic alliances. This study considers the retailer–supplier partnership through a vendor-managed inventory (VMI) system and develops an analytical model to explore the effect of important supply chain parameters on the cost savings realized from collaborative initiatives. This model is developed for a two-level supply chain consisting of a single supplier and a single retailer and examines the inventory management practices before and after implementation of VMI. The results of analytical examination show that VMI implementation in economic order quantity model when shortage is backlogged sometimes has the ability to reduce total costs of supply chains. Three numerical examples are also given to support this claim. KeywordsVendor-managed inventory-Supply chain management-Economic order quantity-Shortage-Backlog

An Integrated Pricing and Deteriorating Model and a Hybrid Algorithm for a VMI (Vendor-Managed-Inventory) Supply Chain

Article

Full-text available

Nov 2011

This paper studies a vendor-managed-inventory (VMI) supply chain where a manufacturer, as a vendor, procures a type of nondeteriorating raw material to produce a deteriorating product, and distribute it to multiple retailers. The price of the product offered by one retailer is also influenced by the prices offered by other retailers because consumers can choose the product from any of the retailers. This paper is one of the first papers that propose an integrated model to study the influence of pricing and deterioration on the profit of such a VMI system. A hybrid approach combining genetic algorithms and an analytical method is developed for efficiently determining the optimal price of the product of each retailer, the inventory policies of the product and the raw material. Our results of a detailed numerical study show that parameters related to the market and deterioration have significant influences on the profit of the VMI system. However, different from common intuition, we find that an increase in the substitution elasticity of the product among different retailers can bring an increase in the retail prices of the product, while the increase of the market scale can reduce the retail prices.

Calculating the benefits of vendor managed inventory in a manufacturer-retailer system

Article

Oct 2010

Firms such as Wal-Mart and Campbell’s Soup have successfully implemented vendor managed inventory (VMI). Articles in the trade press and academic literature often begin with the premise that VMI is ’beneficial’; but beneficial to which party and under what conditions? We consider in this paper a vendor V that manufactures a particular product at a unique location. That item is sold to a single retailer, the customer C. Three cases are treated in detail: independent decision making (no agreement between the parties); VMI, whereby the supplier V initiates orders on behalf of C; and central decision making (both vendor and customer are controlled by the same corporate entity). Values of some cost parameters may vary between the three cases and each case may cause a different actor to be responsible for particular expenses. Under a constant demand rate, optimal solutions are obtained analytically for the customer’s order quantity, the vendor’s production quantity, hence the parties’ individual and total costs in the three cases. Inequalities are obtained to delineate those situations in which VMI is beneficial.

A logistics network design model with vendor managed inventory

Article

Feb 2012
INT J PROD ECON

In this paper, we study a logistics network design problem with vendor managed inventory in which the company is in charge of managing inventory for its downstream warehouses and retailers, and can choose whether to satisfy each retailer's demand. The problem incorporates the location, transportation, pricing, and warehouse-retailer echelon inventory replenishment decisions. Traditionally, these decisions are made separately. We formulate the problem as a set-packing model and solve it using branch-and-price. The pricing problem that arises from each iteration of the column generation procedure is an interesting nonlinear IP problem. We show the pricing problem can be solved in O(n2logn) time for each warehouse, where n is the number of retailers. The computational results shed insights on the benefits that the integrated approach can achieve significant profit improvement. The computational results also highlight the efficiency of the solution algorithm.

Foundation of Inventory Management

Article

Jan 1998

P.H. Zipkin

An Efficient Algorithm for Computing an Optimal (r, Q) Policy in Continuous Review Stochastic Inventory Systems

Article

Aug 1992

The reorder point/reorder quantity policies, also referred to as (r,Q) policies, are widely used in industry and extensively studied in the literature. However, for a period of almost 30 years there has been no efficient algorithm for computing optimal control parameters for such policies. We present a surprisingly simple and efficient algorithm for the determination of an optimal (r * ,Q * ) policy. The computational complexity of the algorithm is linear in Q * . For the most prevalent case of linear holding, backlogging and stockout penalty costs (in addition to fixed order costs), the algorithm requires at most (6r * +13Q * ) elementary operations (additions, comparisons and multiplications), and hence, no more than 13 times the amount of work required to do a single evaluation of the long-run average cost function in the point (r * ,Q * ).

Vendor managed inventory (VMI) with consignment considering learning and forgetting effects

Article

Jan 2011
INT J PROD ECON

The paper considers two research issues that usually interact in practice, which are the 'VMI with consignment' inventory policy and the 'Learning Curve'. Under a VMI with consignment agreement, the vendor is the one who manages the buyer's inventory, and he holds the property of the inventory until the withdrawal of the buyer: this practice also offers to the vendor the possibility of revising its production plans and shipments according to alternative policy also exploiting the opportunity offered by learning in production. The paper, which considers a two-level supply chain system with a single-vendor and a single-buyer at each level, investigates and compares different policies that the vendor may adopt to exploit the advantages offered by the VMI with consignment agreement when the vendor's production process is subject to learning effects. The main result of the study is to show how learning in production can give flexibility to the supply chain stake holders in assigning the size and the time of each shipment.

Contracting Under Vendor Managed Inventory Systems Using Holding Cost Subsidies

Article

Feb 2009
PROD OPER MANAG

Vendor managed inventory systems are becoming increasingly popular. An important issue in implementing a vendor managed inventory scheme is the contracting terms that dictate the ownership of the inventory and the responsibility of inventory replenishment decisions. Thus the performance of a vendor managed system crucially depends on these terms and on how inventory-related costs are shared in a supply chain. We consider a system where a manufacturer supplies a single product to a retailer who faces random demand in a competitive market. The retailer incurs a fixed cost per order, inventory holding cost, and a penalty cost for a stockout (unsatisfied demand is back-ordered). Further, the manufacturer incurs a penalty cost when there is a stockout at the retailer and a fixed replenishment cost. We assume that the players are rational and act noncooperatively. We compare the performance of retailer managed inventory systems, where the retailer places orders and makes replenishment decisions, with vendor managed inventory systems, wherein the vendor or manufacturer makes inventory and replenishment decisions. Specifically, in the vendor managed inventory system, we propose and evaluate holding cost subsidy-type contracts on inventories offered by the retailer to improve system performance. We evaluate this contract in the context of three widely used inventory systems—deterministic economic order quantity, continuous review (Q, r) policies, and periodic review policies—and show when such contracts may improve channel performance.

Stock Replenishment and Shipment Scheduling for Vendor-Managed Inventory Systems

Article

Feb 2000

Vendor-managed inventory (VMI) is a supply-chain initiative where the supplier is authorized to manage inventories of agreed-upon stock-keeping units at retail locations. The benefits of VMI are well recognized by successful retail businesses such as Wal-Mart. In VMI, distortion of demand information (known as bullwhip effect) transferred from the downstream supply-chain member (e.g., retailer) to the upstream member (e.g., supplier) is minimized, stockout situations are less frequent, and inventory-carrying costs are reduced. Furthermore, a VMI supplier has the liberty of controlling the downstream resupply decisions rather than filling orders as they are placed. Thus, the approach offers a framework for synchronizing inventory and transportation decisions. In this paper, we present an analytical model for coordinating inventory and transportation decisions in VMI systems. Although the coordination of inventory and transportation has been addressed in the literature, our particular problem has not been explored previously. Specifically, we consider a vendor realizing a sequence of random demands from a group of retailers located in a given geographical region. Ideally, these demands should be shipped immediately. However, the vendor has the autonomy of holding small orders until an agreeable dispatch time with the expectation that an economical consolidated dispatch quantity accumulates. As a result, the actual inventory requirements at the vendor are partly dictated by the parameters of the shipment-release policy in use. We compute the optimum replenishment quantity and dispatch frequency simultaneously. We develop a renewaltheoretic model for the case of Poisson demands, and present analytical results.

On Properties of Stochastic Inventory Systems

Article

Jan 1992

Yu-Sheng Zheng

For most order quantity/reorder point inventory systems, the stochastic model, which specifies the demands as stochastic processes, is often more accurate than its deterministic counterpart—the EOQ model. However, the application of the stochastic model has been limited because of the absence of insightful analytical results on the model. This paper analyzes the stochastic order quantity/reorder point model in comparison with a corresponding deterministic EOQ model. Based on simple optimality conditions for the control variables derived in the paper, a sensitivity analysis is carried out, and a number of basic qualitative properties are established for the optimal control parameters. Our main results include the following: (1) in contrast to the deterministic EOQ model, the controllable costs of the stochastic model due to selection of the order quantity (assuming the reorder point is chosen optimally for every order quantity) are actually smaller, while the total costs are clearly larger; the optimal order quantity is larger, but the difference is relatively small when the quantity is large; the cost performance is even less sensitive to choices of the order quantity; (2) the relative increase of the costs incurred by using the quantity determined by the EOQ instead of the optimal from the stochastic model is no more than 1/8, and vanishes when the ordering costs are significant relative to other costs.

Vendor-managed inventory in a global environment with exchange rate uncertainty

Article

Apr 2011
INT J PROD ECON

Vendor-managed inventory (VMI) is a well-known industry practice for supply chain collaboration. In this paper we consider a periodic-review stochastic inventory model to examine the benefits of VMI in a global environment, in which the supplier and the retailer face exchange rate uncertainty and incur different fixed ordering costs. Our study suggests that, despite of all the inventory costs transferred from the retailer, the supplier can benefit from VMI by achieving economies of scale in production/delivery. It also suggests that the supply chain total cost always decreases under VMI and the reduction of the supply chain total cost is larger when there is exchange rate uncertainty, compared with the case of no exchange rate uncertainty. We also provide some analytical results, including the optimality of a state-dependent (s, S) policy for the supplier.

On contracts for VMI program with continuous review (r, Q) policy

Article

Dec 2010
EUR J OPER RES

Based on continuous review (r, Q) policy, this paper deals with contracts for vendor managed inventory (VMI) program in a system comprising a single vendor and a single retailer. Two business scenarios that are popular in VMI program are "vendor with ownership" and "retailer with ownership". Taking the system performance in centralized control as benchmark, we define a contract "perfect" if the contract can enable the system to be coordinated and can guarantee the program to be trusted. A revenue sharing contract is designed for vendor with ownership, and a franchising contract is designed for retailer with ownership. Without consideration of order policy and related costs at the vendor site, it is shown that one contract can perform satisfactorily and the other one is a perfect contract. With consideration of order policy and related costs at the vendor site, it is shown that one contract can perform satisfactorily and the performance of the other one depends on system parameters.

Vendor-managed inventory and the effect of channel power

Article

Sep 2009

We analyze decentralized supply chains that follow general continuous review (Q, R) inventory policies subject to vendor-managed inventory agreements where the supplier chooses the order quantity Q, and the retailer chooses the reorder point R. Within the VMI scenario, we explore the effect of divisions of channel power on supply chain and individual agent performance by examining different game theoretic models. Optimal policies and analytical results, including existence and uniqueness proofs for equilibrium solutions under VMI, are derived. Numerical results are provided to compare the effectiveness of VMI and to analyze different channel power relationships under a variety of environmental conditions. We find that VMI can result in considerable supply chain savings over traditional relationships and that the relative division of channel power can significantly effect the performance of VMI. Interestingly, we find that the greatest system benefits from VMI arise in asymmetric channel power relationships, but that individual agents lack the incentive to assume a leadership role.

Vendor managed inventory model for single-vendor multi-retailer supply chains

Article

Aug 2010
EUR J OPER RES

Vendor managed inventory is an integrated approach for retailer–vendor coordination, according to which the vendor decides on the appropriate inventory levels within bounds that are agreed upon in a contractual agreement between vendor and retailers. In this contract, the vendor usually incurs a penalty cost for items exceeding these bounds. The purpose of this paper is to develop a model for a supply chain with single vendor and multiple retailers under VMI mode of operation. This model explicitly includes the VMI contractual agreement between the vendor and retailers. The developed model can easily describe supply chains with capacity constraints by selecting high penalty cost. Theorems are established to alleviate the complexity of the model and render the mathematics tractable. Moreover, an efficient algorithm is devised to find the global optimal solution. This algorithm reduces the computational efforts significantly. In addition, numerical experiments are conducted to show the utility of the proposed model.

Coordinating supply chains with sales rebate contracts and vendor-managed inventory

Article

Jul 2009
INT J PROD ECON

Coordinating supply chains is an effective way to improve channel performance. This paper details how a sales rebate contract helps achieve supply chain coordination which allows decentralized decisions of chain members to perform a centralized decision for the whole system. A model in the context of a two-echelon supply chain with a single supplier serving multiple retailers in vendor-managed inventory (VMI) partnership is proposed. VMI facilitates the application of the sales rebate contract since information sharing in VMI partnership allows the supplier to obtain actual sales data in a timely manner and determine the rebate for retailers. Retailers are considered in two scenarios: independent retailers with a demand function sensitive only to their own price and competing retailers with a demand function depending on all retailers’ prices. The proposed model demonstrates that the supplier gains more profit with competing retailers than without as competition among the retailers lowers the prices and thus stimulates demand.

Vendor managed inventory with a capacitated manufacturer and multiple retailers: Retailer versus manufacturer leadership

Article

Nov 2010
INT J PROD ECON

Considering a supply chain composed of a single capacitated manufacturer and multiple retailers, we model a Stackelberg game vendor managed inventory framework under two scenarios: in the first, we follow the traditional approach wherein the manufacturer is the leader; in the second, we let one of the retailers act as the dominant player of the supply chain. Is retailer dominance a preferred outcome by all retailers? Can the supply chain efficiency be improved by having the dominance gravitated from the manufacturer to one of the retailers? Solving the corresponding MINLP problems, we provide some insights using numerical examples.

Impact of consignment inventory and vendor-managed inventory for a two-party supply chain

Article

Jun 2008
INT J PROD ECON

Vendor-managed inventory (VMI) and consignment inventory (CI) are supply-chain sourcing practices between a vendor and customer. VMI allows the vendor to initiate orders on behalf of the customer. This presumably benefits the vendor who can then make replenishment decisions according to her own preferences. In CI, as in the usual independent-sourcing approach to doing business, the customer has authority over the timing and quantity of replenishments. CI seems to favor the customer because, in addition, he pays for the goods only upon use. Our main aim is to analyze CI in this supply chain under deterministic demand, and provide some general conditions under which CI creates benefits for the vendor, for the customer, and for the two parties together. We also consider similar issues for the combined use of CI and VMI.

Adaptive fuzzy vendor managed inventory control for mitigating the Bullwhip effect in supply chains

Article

Jan 2012
EUR J OPER RES

This paper proposes an adaptive fuzzy control application to support a vendor managed inventory (VMI). The methodology applies fuzzy control to generate an adaptive smoothing constant in the forecast method, production and delivery plan to eliminate, for example, the rationing and gaming or the Houlihan effect and the order batching effect or the Burbidge effects and finally the Bullwhip effect. The results show that the adaptive fuzzy VMI control surpasses fuzzy VMI control and traditional VMI in terms of mitigating the Bullwhip effect and lower delivery overshoots and backorders. This paper also guides management in allocating inventory by coordinating suppliers and buyers to ensure minimum inventory levels across a supply chain. Adaptive fuzzy VMI control is the main contribution of this paper.

A one-vendor multi-buyer integrated production-inventory model: The 'Consignment Stock' case

Article

Mar 2009
INT J PROD ECON

In recent years, companies have strengthened their supply agreements, and even the management of their inventories. To this aim, vendor-managed inventory (VMI) represents an interesting approach to stock monitoring and control, and it has been progressively considered and introduced in several companies. The research proposed investigates the way how a particular VMI policy, known as Consignment Stock (CS), may represent a successful strategy for both the buyer and the supplier. The most radical application of CS may lead to the suppression of the vendor inventory, as this actor uses the buyer's warehouse to stock its finished products. As a counterpart, the vendor will guarantee that the quantity stored in the buyer's warehouse will be kept between a maximum level and a minimum one, also supporting the additional costs eventually induced by stock-out conditions. The buyer will pick up from its store the quantity of material needed to meet its production plans and the material itself will be paid to the buyer according to the agreement signed. In previous studies, Braglia and Zavanella [2003. Modelling an industrial strategy for inventory management in supply chains: The 'Consignment Stock' case. International Journal of Production Research 41, 3793-3808] developed an analytical model of the CS policy, referring to a single-vendor and single-buyer situation. The same authors presented a comparison with the optimal solution available in the literature (in particular, with reference to Hill's model [1997. The single-vendor single-buyer integrated production-inventory model with a generalised policy. European Journal of Operational Research 97, 493-499]). The analytical results obtained allow the identification of the benefits and profitability that the CS approach determines in environments affected by uncertain demand. In order to understand the potential benefits of the CS policy, an analytical model is offered with reference to the interesting industrial case of a single-vendor and multiple-buyer productive situation, thus obtaining the optimal replenishment decisions for both the vendor and buyers in such a situation. The results show how the CS policy works better than the uncoordinated optimisation.

Stocking policy in a two-party vendor managed channel with space restrictions

Article

Feb 2009
INT J PROD ECON

In a two-party VMI channel, the vendor operates the basic stocking and delivery functions and makes inventory replenishment decisions while the retailer is responsible for customer acquisition and in-store services. This paper focuses on such retail channel and proposes an analytical model for the partners in supply channel to determine the inventory policy with the objective of optimizing system net profit. The model explicitly incorporates issues from both the vendor and the retailer in order to derive a policy for mutual benefits. To illustrate and obtain insights from the proposed solution procedure, we devise a set of numerical analyses based on various scenarios. Factors such as shelf-space-dependent demand, shelf-space capacity, demand pattern, logistics characteristics, and disparity between holding costs of the warehouse and the retail store are also investigated.

Contracting for vendor-managed inventory with consignment stock and stockout-cost sharing

Abstract

No full-text available

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