VMI modelling in global and electronic markets

Abstract

Many dramatic changes have recently occurred that exacerbated the need for sophisticated and responsive approaches to supply chain management. A promising strategic opportunity is the collaboration among supply chain partners through the integration of the decision-making process across the extended enterprise. Vendor-Managed Inventory (VMI) is such a strategy, which includes a modern approach for inventory management, where the supplier takes on the responsibility of monitoring, planning and directly replenishing the inventory at the retailer's site. This research aims first to summarise the major quantitative research efforts on VMI systems, second to briefly present the technological infrastructure required, and finally to evaluate the performance of a two-echelon supply chain (one vendor and N retailers) under a VMI logic. We present optimal policies, obtained through a discrete-event simulation model and a grid search algorithm, that maximise the supply chain's total profit. The VMI system performance is compared to the performance of a system where the retailer manages its own inventory (RMI Retailer Managed Inventory). Extensive numerical experimentation provides useful managerial insights.