Abstract

We investigate the optimal supply chain structure in inventory location with the advance of omnichannel in the retail industry. Based on a dyadic supply chain consisting of a supplier and buyer(s) considering asymmetric information and flexible production lead times, we show that a dichotomous inventory location, combining VMI (Vendor Managed Inventory) and RMI(Retailer Managed Inventory), is optimal for the whole system in the presence of nonstationary demand across periods and asymmetric information between the suppplier and the buyer(s). Next, on the request of mass merchandisers to increase material availability under omnichannel initiatives, we show that more investment in reducing the production lead time is necessary when customer demands are less correlated across periods. It seems that such guideline for the investment in material availability can be more valuable with an increasing trend of omnichannel initiatives to revamp consumer experience in an uncertain market environment.

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