The Preference of VMI Contract on Traditional RMI System in an Optimal Healthcare Supply Network: A Comparative Study

Abstract

This research studies the performance and outcomes of the Vendor Managed Inventory (VMI) system with comparison to the traditional Retailer Managed Inventory (RMI) system. In the proposed model of the VMI system, we integrate the role of the VMI system in the location-inventory assignment problem with the replenishment policy assignment for a chain of hospitals. The healthcare supply chain network under a study composed of a single vendor provides multiple commodities of medical implants to multiple hospitals with a VMI system under a deterministic demand environment. The vendor needs to determine the location of VMI, the number of products, and the number of orders in a way to have a minimal total cost of transportation, inventory, and other associated operating costs. In this study, we compare the total cost of the VMI system with traditional RMI systems for a chain of hospitals. We consider the total cost for each system as a tool of performance measure between VMI and RMI systems. In each case, we developed a mathematical model as a mixed integer non-linear programming for the VMI and RMI with continuous review policies. The two models were solved using GAMS, and the computational results and sensitivity analysis are provided. The results for this case study show that the application of the VMI system is more justified and works better in terms of the cost, same being lower than the cost of traditional RMI systems.