Modeling and Values of Vendor Managed Inventory in the Retail Supply Chain

Abstract

Vendor managed inventory (VMI) is one of the most widely discussed partnering initiatives for improving multi-firm supply chain efficiency. VMI became one of the key programs in the grocery industry's pursuit of "efficient consumer response" and garment industry's "quick response". And at present, we know that many companies have successfully improved their supply chain performance by implementing the approach of VMI. With VMI, vendors specify delivery quantities sent to customers through the distribution channel using data obtained from electronic data interchange (EDI). A model for a VMI system is constructed where vendors can manage stock at the retailers' locations. A supply chain system in this model has been constructed which is composed of m vendors and n identical retailers. Vendors' and retailers' profits can be calculated for different retailer order batch policies. In this model, we use several parameters because the distances between the vendors and retailers are not same; the stock costs of vendors can vary; the kinds, prices and quantities of retailers' ordering can vary; stock-out contributions of retailers to the vendors can vary. The objective of the model is to minimize total inventory costs for vendors. The model also can analyze how alternative policies can minimize vendor and retailer profits. A simulation example is given