Inventory decision for stock-level-dependent demand items with and without VMI

Abstract

Researches on vendor-managed inventory (VMI) system rarely consider the relationships between demand rate and inventory level. This paper extended the previous research by considering the effects of stock-level-dependent demand on the benefits of VMI system. Models for items with stock-level-dependent demand were developed to compare the performance of a series supply chain system with and without VMI. Performance measures used in the analysis included the order size placed on the supplier per replenishment, the average net profit and replenishment cycle time. The simulation results show that the implementation of VMI will lead to a less frequent replenishment and more stable order lot size, also show that the VMI implementation will harm the average net profit of retailer, which is different from many of the previous conclusions on VMI system with classical demand pattern. This phenomenon is especially obvious when the market demand is more elastic or the coefficient of inventory level elasticity is larger.