Optimizing vendor-managed inventory systems with limited storage capacity and partial backordering under stochastic demand

Abstract

A supply chain member’s coordination is a challenging issue and a key factor of success in business markets. In vendor-managed inventory systems, the vendor makes replenishment decisions at the site of buyer by which the supply chain can be coordinated more efficiently. Two integrated vendor managed inventory systems under continuous review and periodic review replenishment policies are developed considering partial backordering and limited storage capacity at the buyer’s side. Furthermore, traditional retailer managed inventory systems under the same settings are developed to compare against the integrated systems. Efficient algorithms are presented to derive the optimal values of decision variables. Finally, numerical experiments and comprehensive sensitivity analysis are used to show the applicability and efficiency of the proposed VMI systems.