Inventory Management Under Power Structures With Consignment Contract Subject to Inventory Inaccuracy

Abstract

This paper focuses on who should control the inventory and who should lead the supply chain under consignment contract. The supply chain consists of one supplier and one retailer, and inventory inaccuracy occurs on the retailer's side. Vendor-managed inventory (VMI) and retailer-managed inventory (RMI) models are analyzed in two different supply chain power structures: where the supplier is the Stackelberg leader (referred as SVMI and SRMI) and where the retailer is the Stackelberg leader (referred as RVMI and RRMI). The inventory availability and the channel cost sharing rate are examined to investigate the impact of these two factors on supply chain performance under four cases. It is important to find that whatever the values of the inventory availability and the channel cost sharing rate may be, the retailer always prefers SVMI. However, there is a threshold value of inventory availability (channel cost sharing rate) such that the supplier prefers SVMI only if the inventory availability (channel cost sharing rate) is larger (less) than the threshold value; and it prefers RRMI only if the inventory availability (channel cost sharing rate) is less (larger) than the threshold value. Therefore, both leading retailer and leading supplier have the incentive to act as the follower.