Operating parameters for a single-vendor multiple-buyers Vendor Managed Inventory System with Outsourcing

Abstract

This paper discusses the operating parameters of a Two echelon single-vendor?'n' buyers Vendor Managed Inventory System with Outsourcing (TVMISO). The operating parameters of the above model are the selling prices at the buyers market, and the contract prices between the vendor and the buyers. The selling prices depend on the sales quantities and determine the channel profit of the Supply Chain (SC). The contract prices depend on the partners understanding on their revenue sharing agreement. A mathematical model of the TVMISO problem is formulated to find the optimal sales quantities for maximum channel profit. Selling prices, contract prices and outsourcing quantity are derived from obtained optimal sales quantities. The mathematical model formulation of TVMISO involves mixed integer variables, a non-linear objective function and linear constraints which fall under the category of Mixed Integer Non-linear Programming optimisation problem. A Genetic Algorithm based heuristic is proposed to find the near optimal operational parameters of the TVMISO problem. The proposed methodology is evaluated for its solution quality. Besides, the robustness of model with its parameters, which fluctuate frequently and are sensitive to operational features are analysed.