A Comparison Study of Replenishment Strategies in Vendor-Managed Inventory

Abstract

In a vendor-managed inventory system, the supplier rents a third party provider’s warehouse which is close to its buyer and the buyer shares the demand forecast information with the supplier. However, the relationship between inventory cost and service level is a trade-off problem. In this study, we propose a forecast forward replenishment (FFR) strategy to improve the performance of the warehouse management regarding inventory cost and service level. A simulation study is conducted to compare our proposed FFR strategy with other strategies, such as re-order point (ROP) and material requirement planning (MRP) under different combinations of demand pattern and distribution lead time. The results show that the FFR strategy outperforms the ROP and MRP strategies. A real data set is used to demonstrate the application of our proposed method. The FFR strategy yields lower inventory cost with a certain service level.