BENEFITS OF CPFR AND VMI COLLABORATION STRATEGIES: A SIMULATION STUDY

Raj Kamalapur,David Lyth,Azim Houshyar

doi:10.12660/joscmv6n2p59-73

Abstract

This study provides managerial insight to pursue Collaborative Planning Forecasting and Replenishment (CPFR) or Vendor Managed Inventory (VMI) strategy for both the retailer and manufacturer under different supply chain settings. Discrete event simulation is used to investigate the cost benefits of CPFR and VMI strategies over Traditional Supply Chain (TSC) in a variable demand environment. The conceptual model is a two-echelon production-inventory system with a manufacturer and a retailer. The results from this study suggest that when compared to TSC, both VMI and CPFR achieve cost benefits in inventory management for both the manufacturer and retailer. Under most supply chain settings, higher cost benefits are achieved in CPFR compared to VMI. Also, CPFR achieves higher cost benefits when demand variability is high, production capacity is low, backorder penalty cost is high and delivery lead time is long. However, when production capacity is high and delivery lead time is short, the cost benefits of CPFR and VMI are significantly lower.DOI: 10.12660/joscmv6n2p59-73URL: http://dx.doi.org/10.12660/joscmv6n2p59-73

Highlights

To manage demand variability in supply chain, many manufacturers, distributors and retailers maintain high level of safety stock inventory which increases overall cost of inventory management
It shows that on average, both CPFR and Vendor Managed Inventory (VMI) perform better than Traditional Supply Chain (TSC) in reducing inventory management cost for the retailer and the manufacturer
For the retailer on average, VMI reduces cost by 16.7% while CPFR reduces cost by 24.1% when compared to TSC

Summary

Introduction

To manage demand variability in supply chain, many manufacturers, distributors and retailers maintain high level of safety stock inventory which increases overall cost of inventory management. Many research studies have shown the benefits of demand information sharing between a retailer and manufacturer (Gavirneni et al, 1999; Lee et al, 2000; Zhao et al, 2002). Most of these studies show that the manufacturer gains more benefits of information sharing compared to the retailer. Vendor Managed Inventory (VMI) and Collaborative Planning, Forecasting and Replenishment (CPFR) are most popular, which are considered in this study Collaboration strategies such as CPFR and VMI require different types of information sharing which can impact the cost benefits of these collaboration strategies. This study aims to investigate and compare the cost benefits of CPFR and VMI over TSC for both the manufacturer and the retailer

Objectives

Methods

Results

Conclusion