Retailer-managed Inventory Research Articles

Retailer- vs. Vendor-managed inventory in the presence of consumer response to retail stockouts

Mishra and Raghunathan (2004) and Kim (2008) conducted a study on the same model but reached conflicting results on under what circumstances vendor-managed inventory (VMI) benefits the retailer as opposed to retailer-managed inventory (RMI) in a setting where two products are partially substitutable. However, we note that their conflicting results were due to different assumptions about unmet demand after product substitution, which is influenced by consumers response to retail stockouts. This paper then extends their studies by incorporating consumer response to retail stockouts and re-examining the impacts of VMI on the retailer’s performance as well as on each manufacturer’s. Therefore, this paper reconciles the conflicts in the existing scholarly work and provides a more complete understanding of when each supply chain member is better off with VMI than RMI in a two-product setting. Additionally, the incorporation of consumer response to retail stockouts sheds light on how product substitution and consumers’ store loyalty affect the value of VMI to each supply chain member.

옴니채널 추진에 따른 최적 공급사슬 구조

We investigate the optimal supply chain structure in inventory location with the advance of omnichannel in the retail industry. Based on a dyadic supply chain consisting of a supplier and buyer(s) considering asymmetric information and flexible production lead times, we show that a dichotomous inventory location, combining VMI (Vendor Managed Inventory) and RMI(Retailer Managed Inventory), is optimal for the whole system in the presence of nonstationary demand across periods and asymmetric information between the suppplier and the buyer(s). Next, on the request of mass merchandisers to increase material availability under omnichannel initiatives, we show that more investment in reducing the production lead time is necessary when customer demands are less correlated across periods. It seems that such guideline for the investment in material availability can be more valuable with an increasing trend of omnichannel initiatives to revamp consumer experience in an uncertain market environment.

Inventory Management Under Power Structures With Consignment Contract Subject to Inventory Inaccuracy

This paper focuses on who should control the inventory and who should lead the supply chain under consignment contract. The supply chain consists of one supplier and one retailer, and inventory inaccuracy occurs on the retailer's side. Vendor-managed inventory (VMI) and retailer-managed inventory (RMI) models are analyzed in two different supply chain power structures: where the supplier is the Stackelberg leader (referred as SVMI and SRMI) and where the retailer is the Stackelberg leader (referred as RVMI and RRMI). The inventory availability and the channel cost sharing rate are examined to investigate the impact of these two factors on supply chain performance under four cases. It is important to find that whatever the values of the inventory availability and the channel cost sharing rate may be, the retailer always prefers SVMI. However, there is a threshold value of inventory availability (channel cost sharing rate) such that the supplier prefers SVMI only if the inventory availability (channel cost sharing rate) is larger (less) than the threshold value; and it prefers RRMI only if the inventory availability (channel cost sharing rate) is less (larger) than the threshold value. Therefore, both leading retailer and leading supplier have the incentive to act as the follower.

Competition model and coordination mechanism considering strategic customer behavior under vendor‐managed inventory

AbstractThis paper proposes the vendor‐managed inventory (VMI) decision model that considers strategic customer behavior. Decision differences between the Stackelberg game equilibria and the supply chain (SC) coordination are compared under the VMI mode. A comparison of the optimal decisions under the VMI mode and the retailer‐managed inventory (RMI) mode is made. The SC members’ preferences for the two inventory modes are obtained under different wholesale price conditions. Then, the option contract is introduced to coordinate the SC, and possible allocation schemes of the coordinated expected profit between the SC members are discussed. Through a reasonable design of the option contract, a Pareto improvement can be achieved with the SC being coordinated. All of our findings are illustrated using numerical examples.

Coordinated delivery in urban retail

In the Coordinated Delivery Problem (CDP), we study the passive and proactive coordination strategies that coordinate the delivery among urban retail stores. We formulate the CDP as mixed integer programs and develop a matheuristic, the effectiveness of which is evaluated via newly generated instances. Our numerical study shows that, when the stores prefer placing orders based on their own inventory policies, the proactive coordination strategy is able to achieve similar logistics and services performances to Vendor Managed Inventory (VMI), while respecting the store order decisions as under Retailer Managed Inventory (RMI), and thus offers an excellent combination of VMI and RMI.

Retailer vs. vendor managed inventory with considering stochastic learning effect

Extending the research on the impact of learning effect on inventory management is of particular importance, this paper studies two different inventory management models with considering stochastic learning effect, one is retailer-managed inventory (RMI) scenario, and another is vendor-managed inventory (VMI) scenario. We find that inventory exists in equilibrium provided that the holding cost is under a respective threshold both in the RMI and VMI scenarios, also, the threshold in the RMI scenario is significantly larger than that in the VMI scenario. Moreover, the RMI scenario is Pareto dominant over the VMI scenario except for a very large holding cost, and the advantage in enhancing profit is highlighted in the RMI scenario as the variability of the learning rate increases. Furthermore, the traditional double marginalization effect is weakened by a large variability in the RMI scenario while intensified in the VMI scenario. The results obtained in this paper can provide guidance for the inventory management with considering stochastic learning effect.

Effects of Yield and Lead-Time Uncertainty on Retailer-Managed and Vendor-Managed Inventory Management

Generally, there are various elements of uncertainty in a supply chain. In particular, uncertainties in lead time, demand, and yield are very important in the semiconductor industry. Higher uncertainty can lead to bullwhip effects that can undermine the performance of the entire supply chain. This study examines the relationship between uncertainty in the supply chain and the outcome of inventory replenishment policies. Specifically, we analyze the effects of well-known uncertainties on manufacturer production quantity and retailer order quantity decisions in a decentralized supply chain. In addition, we also analyze and compare the effects of these uncertainties for the retailer-managed inventory and the vendor-managed inventory policies. Using numerical experiments, a comparative analysis of the two alternatives is conducted to determine suitable options for improving supply chain performance. In general, the performance of vendor-managed inventory is better than that of retailer-managed inventory, but we observe from the numerical experiments that there exist circumstances under which retailer-managed inventory shows better supply chain performance.

Vendor managed inventory contracts – coordinating the supply chain while looking from the vendor’s perspective

The paper studies coordination of a supply chain when the inventory is managed by the vendor (VMI). We also provide a general mathematical framework that can be used to analyze contracts under both retailer managed inventory (RMI) and VMI. Using a simple newsvendor scenario with a single vendor and single retailer, we study five popular coordinating supply chain contracts: buyback, quantity flexibility, quantity discount, sales rebate, and revenue sharing contracts. We analyze the ability of these contracts to coordinate the supply chain under VMI when the vendor freely decides the quantity. We find that even though all of them coordinate under RMI, quantity flexibility and sales rebate contracts do not generally coordinate under VMI. Furthermore, buyback and revenue sharing contracts are equivalent. Hence, we propose two new contracts which coordinate under VMI (one of which coordinates under RMI too, provided a well-known assumption holds). Finally, we extend our analysis to consider multiple independent retailers with the vendor incurring linear or convex production cost, and show that our results are qualitatively unchanged.

How much does VMI better than RMI in a global environment?

Vendor-managed inventory (VMI) strategy can improve the performance of supply chain by deciding more appropriate order quantity, compared with retailer-managed inventory (RMI). We present an EOQ based model to study the performance of VMI in a global environment, in which the retailer faces demand uncertainty (distribution of demand is unknown yet) and the supplier faces exchange rate uncertainty. We prove the performance ratio of the long-run average costs under VMI to that under RMI in theory. Our study suggests that VMI does not perform better than RMI all the time when VMI cannot reduce the ordering/delivery/holding cost, and VMI performs worse first and better later as the degree of exchange rate fluctuation increases. But it is worth to apply VMI strategy if the ordering/delivery/holding cost can be reduced.

Buyer–supplier relationship and optimisation model in a dynamic collaborative network with shortages allowed

To remain competitive, enterprises must build and manage product/service customisation and dynamic collaborative networks to respond to market needs in a flexible manner with competitive price and high product/service quality. This study deals with the emerging research problem of optimally dynamic combined decisions: retail price, stock depletion time/service level (SL) and replenishment schedule/quantity in a decentralised two-echelon perishable product collaborative network comprising a single supplier and a single retailer (buyer) over a finite multi-period planning horizon. Analytical solutions are derived using calculus with dynamic programming under two different trading policies, namely retailer-managed inventory with price-only (RMIPO) mode and vendor-managed inventory with consignment contract (VMICC) mode. In both models, shortages are allowed and are fully backlogged. The validity of the proposed approach is demonstrated using the case of a simple supply chain comprising a regional seafood supplier and a local branch store of a national retail chain. The results show that the VMICC policy yields lower retail price, larger replenishment quantity, higher SL and greater channel-wide profit than the RMIPO policy and achieves a win-win situation for both parties in the supply chain. Additionally, consumers benefit from lower retail price and higher SL in the VMICC policy.

Optimal dynamic policies for integrated production and marketing planning in business-to-business marketplaces

This work develops optimal dynamic policies for integrated production and marketing planning in a vertically decentralized single-manufacturer and single-retailer channel over a multi-period planning horizon, subject to deteriorating goods and a multivariate demand function. This work formulates the discount profit maximization problem, and provides inter-enterprise dynamic joint decisions for retail price and replenishment schedule/quantity using a calculus-based formulation combined with dynamic programming. Additionally, two alternatives for doing business, namely, retailer-managed inventory with a price-only contract and vendor-managed inventory (VMI) with a consignment contract, are applied to business-to-business traditional marketplaces (TMs) and electronic marketplaces (EMs), respectively. Numerical results demonstrate that solutions generated in EMs outperform those in TMs in terms of maximizing channel-wide total discount profits and those of manufacturer and retailer. Further, analytical results show that the proposed policy under VMI with a consignment contract in EMs significantly increases system efficiency and simultaneously achieves Pareto improvements using an extra one-part tariff for the decentralized channel.

Optimizing an integrated vendor-managed inventory system for a single-vendor two-buyer supply chain with determining weighting factor for vendor׳s ordering cost

This paper considers a two-echelon supply chain model with a single vendor and two buyers in which the vendor supplies the same item to both buyers at a finite production rate. The purpose of this study is twofold. First, mathematical models are developed for the integrated vendor-managed inventory (VMI) policy as well as the traditional retailer-managed inventory (RMI) system and solution algorithms are presented to determine the optimal lot size and total inventory cost of the supply chain. Then, the effect of key parameters including buyer׳s demand, buyer׳s transportation cost, vendor׳s ordering cost, and vendor׳s holding cost on lot size variation is studied in each policy. A weighting factor is also determined for the vendor׳s ordering cost which is used to compare the two policies. Detailed numerical experiments are provided to illustrate efficacy of the proposed approach. Results indicate that greater reduction in total cost of supply chain can be achieved by using VMI and provide a comprehensive insight into selection of inventory policies to improve commercial business and supply chain performance.

Multi-period channel coordination in vendor-managed inventory for deteriorating goods

This study examines the problem of optimally dynamic joint decisions, including replenishment scheduling/quantity, retail price, wholesale price, and revenue-sharing allocation, in a vertically decentralised single-manufacturer Stackelberg and single-retailer channel over a multi-period planning horizon, subject to deteriorating goods and multivariate demand function. This study uses a calculus-based formulation combined with dynamic programming techniques to solve the channel coordination decision problem. Additionally, three arrangements, namely price-only contract, revenue-sharing contract, and revenue-sharing plus linear rebate and side-payment contract for channel coordination, are developed under retailer-managed inventory (RMI) and vendor-managed inventory (VMI) systems, respectively. The analysis reveals that the proposed policy under the VMI system with the revenue-sharing plus linear rebate and side-payment contract tends to obtain low retail prices and large demand quantity, and results in near-perfect coordination, including greater system efficiency and Pareto improvements, for the vertically decentralised dynamic channel.

A One-Vendor Multiple-Buyer Production-Distribution System: Vendor-Managed Inventory and Retailer-Managed Inventory

The paper considers a production/distribution system that involves one vendor and multiple buyers. The buyers belong to an entity that is operationally more cost ecient than the vendor. We study two settings that have been widely applied in practice: vendor-managed inventory (VMI) and retailer-managed inventory (RMI). Specically for the two-buyer problem, we characterize equilibrium under RMI and optimal solution under VMI. Our VMI solution is shown to be more cost ecient than others in literature. The general multiple-buyer problem can be non-tractibal and a heuristic is provided to approach decisions under both settings. One surprising nding is that under VMI, the production decision need not involve operational information of the buyers (e.g., inventory/logistic costs) but only their market information (e.g., demand). Numerical results suggest that VMI and just-in-time production are substitutes in improving the eciency of the distribution network. VMI can be more critical for companies with rigid capacity, seasonally low demand, or complex distribution networks.

Inventory decision models with competition existing between two parallel supply chains

When the retailer of one supply chain is out of stock, his customers are likely, with some probability, to switch to other products of a substitutable brand from the retailer of another supply chain. Providing a two-brand substitution situation, this paper examines what impacts it has on the stocking level and expected profit of two supply chains when they are on three scenarios, namely, the 'both chains implement Retailer-managed Inventory (RMI)' scenario, the 'one chain implements RMI and another chain implements Vendor-managed Inventory (VMI)' scenario and the 'both chains implement VMI' scenario. No matter what scenario the two supply chains are on, the degree of substitution has similar effects on the stocking level and expected profit of every member. Under certain conditions, one supply chain that changes its own stocking decision can significantly affect not only its own stocking level and expected profit, but also the stocking level and expected profit of another supply chain because of the existence of competition.

Research Note—Revisiting “Retailer- vs. Vendor-Managed Inventory and Brand Competition”

In a recent paper, Mishra and Raghunathan (Mishra, B. K., S. Raghunathan. 2004. Retailer- vs. vendor-managed inventory and brand competition. Management Sci. 50(4) 445–457) claimed that retailers prefer vendor-managed inventory (VMI) because it restores competition among manufacturers and encourages them to maintain a higher stock of their own brand under VMI than would be maintained under retailer-managed inventory (RMI). This paper shows that these results do not hold in general: each manufacturer's stocking level may be higher under RMI than under VMI and the retailer may lose by adopting VMI depending on the profit margin of the retailer relative to that of the manufacturers, the magnitude of the holding costs, and the intensity of brand competition. Numerical examples show that the effect of brand competition on the system is not so significant and the transfer of holding cost to the vendor is the key incentive for the retailer's adoption of VMI.

VMI modelling in global and electronic markets

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.

Minimizing the Total Cost in an Integrated Vendor—Managed Inventory System

In this paper we consider a complex production-distribution system, where a facility produces (or orders from an external supplier) several items which are distributed to a set of retailers by a fleet of vehicles. We consider Vendor-Managed Inventory (VMI) policies, in which the facility knows the inventory levels of the retailers and takes care of their replenishment policies. The production (or ordering) policy, the retailers replenishment policies and the transportation policy have to be determined so as to minimize the total system cost. The cost includes the fixed and variable production costs at the facility, the inventory costs at the facility and at the retailers and the transportation costs, that is the fixed costs of the vehicles and the traveling costs. We study two different types of VMI policies: The order-up-to level policy, in which the order-up-to level quantity is shipped to each retailer whenever served (i.e. the quantity delivered to each retailer is such that the maximum level of the inventory at the retailer is reached) and the fill-fill-dump policy, in which the order-up-to level quantity is shipped to all but the last retailer on each delivery route, while the quantity delivered to the last retailer is the minimum between the order-up-to level quantity and the residual transportation capacity of the vehicle. We propose two different decompositions of the problem and optimal or heuristic procedures for the solution of the subproblems. We show that, for reasonable initial values of the variables, the order in which the subproblems are solved does not influence the final solution. We will first solve the distribution subproblem and then the production subproblem. The computational results show that the fill-fill-dump policy reduces the average cost with respect to the order-up-to level policy and that one of the decompositions is more effective. Moreover, we compare the VMI policies with the more traditional Retailer-Managed Inventory (RMI) policy and show that the VMI policies significantly reduce the average cost with respect to the RMI policy.

Coordinating Production and Delivery Under a (z, Z)-Type Vendor-Managed Inventory Contract

This paper models a type of vendor-managed inventory (VMI) agreement that occurs in practice called a (z, Z) contract. We investigate the savings due to better coordination of production and delivery facilitated by such an agreement. The optimal behavior of both the supplier and the retailer are characterized. The optimal replenishment and production policies for a supplier are found to be up-to policies, which are shown to be easily computed by decoupling the periods when the supplier outsources from those when the supplier does not outsource. A simple application of the newsvendor relation is used to define the retailer's optimal policy. Numerical analysis is conducted to compare the performance of a single supplier and a single retailer operating under a (z, Z) VMI contract with the performance of those operating under traditional retailer-managed inventory (RMI) with information sharing. Our results verify some observations made in industry about VMI and show that the (z, Z) type of VMI agreement performs significantly better than RMI in many settings, but can perform worse in others.