Exploring the Effects of Sharing Information on Expected Cost under the VMI Model

Abstract

This paper was to discuss the effects of information sharing between the vendors and the retailers. Assuming the underlying demand process was followed by auto-regressive moving average ARMA(1,2) in vendor managed inventory (VMI). Considering different information-sharing levels, such as no information sharing, partial information sharing, and full information sharing, with the factors of the lead time, the correlation coefficient between demand prediction and current demand, and the correlation coefficient between prediction error terms and demand, this research was to find the importance of single and multiple effects on the vendors' delivery variance, delivery-up-to level, and expected cost. Through the sensitivity analysis, the effects from the single and multiple factors at different information-sharing levels could be observed. Moreover, the numerical simulation examined the findings as follows. (1)Information sharing stabilized delivery variance and delivery-up-to level as well as reduced expected cost. (2)At any information sharing level, all factors influenced the vendor’s delivery variance, delivery-up-to level, and expected costs. (3)At any information sharing, the factors of a smaller lead time and a larger coefficient between demand prediction and current demand had more significant effects on minimizing inventory and cost.