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

Abstract

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.