Evolution of operating parameters for multiple vendors multiple buyers vendor managed inventory system with outsourcing

Abstract

This paper discusses the operating parameters of a two-echelon 'm' Vendors - 'n' Buyers Vendor Managed Inventory (VMI) System with outsourcing (MVMBO). The operational parameters to the above model are the selling prices at the buyer's market and the contract prices between the vendors and the buyers. Selling prices depend on sales quantities and determines the channel profit of the supply chain (SC). Contract prices depend on the understanding between partners on their revenue sharing agreement. A mathematical model of the MV MBO model is formulated to find optimal sales quantities (summation of optimal transaction quantities) for maximum channel profit. Optimal outsourcing quantities, selling prices and acceptable contract prices are derived from the obtained optimal transaction quantities. The mathematical model formulation of MV MBO involves mixed integer variable, a non-linear objective function and linear constraints which fall under the category of Mixed Integer Non-linear Programming (MINP) optimization problem. Simulated Annealing Algorithm (SAA) based heuristic is proposed to find the optimal operational parameters of the MVMBO problem. The proposed methodology is evaluated for its solution quality.