Vendor Managed Inventory System Research Articles

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.

A Comparison Study of Replenishment Strategies in Vendor-Managed Inventory

In a vendor-managed inventory system, the supplier rents a third party provider’s warehouse which is close to its buyer and the buyer shares the demand forecast information with the supplier. However, the relationship between inventory cost and service level is a trade-off problem. In this study, we propose a forecast forward replenishment (FFR) strategy to improve the performance of the warehouse management regarding inventory cost and service level. A simulation study is conducted to compare our proposed FFR strategy with other strategies, such as re-order point (ROP) and material requirement planning (MRP) under different combinations of demand pattern and distribution lead time. The results show that the FFR strategy outperforms the ROP and MRP strategies. A real data set is used to demonstrate the application of our proposed method. The FFR strategy yields lower inventory cost with a certain service level.

Developing economic order quantity model for non-instantaneous deteriorating items in vendor-managed inventory (VMI) system

This paper develops an economic order quantity model for non-instantaneous deteriorating items with and without shortages to investigate the performance of the vendor-managed inventory (VMI) system. This model is developed for a two-level supply chain consisting of a single supplier and single retailer with a single non-instantaneous deteriorating item. A numerical example and sensitivity analysis are provided to illustrate how increasing or reducing the related parameters change the optimal values of the decision variables of the two proposed models. The results show that VMI works better and charges lower cost in all conditions.

An analysis of the general benefits of a centralised VMI system based on the EOQ model

Within a vendor-managed inventory (VMI) agreement, the upstream supply chain member (the vendor) takes responsibility for managing the inventory of the downstream member (the customer) within specific levels previously agreed upon without the need of orders from the customer side to be placed. Therefore, the vendor can focus on optimising production efficiency and capacity planning, while the customer has to improve forecast accuracy. This paper analyses the benefits a VMI agreement could bring for a one-supplier, multiple-customer case through analysing two cases: a supply chain managed in a traditional manner and VMI when both the vendor and the customers belong to the same organisation. The analysis is based on the economic ordering quantity (EOQ) formula and its related total cost, and the novelty is captured by evaluating one vendor, multiple buyers, and multiple product situations. The modelling is done so as to capture the needs and factors which occur within the pharmaceutical industry and a numerical application will be executed with data from one of the main leaders within the pharmaceutical field.

Optimal selection of retailers for a manufacturing vendor in a vendor managed inventory system

A Vendor Managed Inventory (VMI) system consists of a manufacturing vendor and a number of retailers. In such a system, it is essential for the vendor to optimally determine retailer selection and other related decisions, such as the product’s replenishment cycle time and the wholesale price, in order to maximize his profit. Meanwhile, each retailer’s decisions on her willingness to enter the system and retail price are simultaneously considered in the retailer selection process. However, the above interactive decision making is complex and the available studies on interactive retailer selection are scarce. In this study, we formulate the retailer selection problem as a Stackelberg game model to help the manufacturer, as a vendor, optimally select his retailers to form a VMI system. This model is non-linear, mixed-integer, game-theoretic, and analytically intractable. Therefore, we further develop a hybrid algorithm for effectively and efficiently solving the developed model. The hybrid algorithm combines dynamic programming (DP), genetic algorithm (GA) and analytical methods. As demonstrated by our numerical studies, the optimal retailer selection can increase the manufacturer’s profit by up to 90% and the selected retailers’ profits significantly compared to non-selection strategy. The proposed hybrid algorithm can solve the model within a minute for a problem with 100 candidate retailers, whereas a pure GA has to take more than 1h to solve a small sized problem of 20 candidate retailers achieving an objective value no worse than that obtained by the hybrid algorithm.

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.

Inventory routing problems in a context of vendor-managed inventory system with consignment stock and transshipment

The inventory routing problem involves the integration and the coordination of two components of the logistics value chain: the inventory management and the vehicle routing decisions. In fact, the aim is to jointly decide on the distribution tour, from a distribution centre to a set of locations, and on the inventory policy for each location. Although many research investigations show great interest in policies such as transshipment or dynamic routings on the distribution system performances, these approaches are often criticised in practice as being too restrictive. In this article, we consider the inventory routing framework in a supplier integration context, i.e. a vendor-managed inventory with a consignment stock policy. Under such framework, we show that the transshipment brings more benefits than the classical context. In particular, we consider the case of static routings and we numerically show that transshipment permits to better optimise the distribution tours and to improve the global performance of the supply network.

Design of vendor managed inventory system for automotive company - a case study

The practice of supply chain management has shifted the responsibility for inventory control to the vendors, leading to the concept of vendor managed inventory (VMI). In order to meet customer demands, vendors must ensure appropriate quantities of storages at the point of demand and must ensure optimal distribution plans that include routing of the distribution vehicles. This paper discusses a detailed literature review of VMI. Existing VMI model for an automotive company is studied in detail and the critical flaws in the present system are identified. This paper proposes information sharing methods, empirical model for supplier segmentation and proposed VMI system with necessary implementation steps for the case company.

Value Creation in Electronic Supply Chains by Adoption of a Vendor Managed Inventory System

Many strategies have been developed to manage supply chain operations effectively. Vendor Managed Inventory (VMI) system is one of the prevalent strategic tools of the supply side logistics based on the electronic data exchange and business process automation among the suppliers and customers to enhance the competitive advantage. VMI is widely used in different industries including automotive sector. The VMI concept is a continuous replenishment program where suppliers are given access to demand and inventory level of customers and they are fully responsible for managing and replenishing the customer’s stock. VMI’s extension on customer satisfaction cannot be perceived sufficiently by decision-makers who are responsible to develop and invest in the customer-supplier relationship. This paper presents a path model using the method of Partial Least Squares (PLS) regression to give insight to decision-makers to understand effect of the VMI adoption on customer satisfaction. This paper investigates both determinants of relative factors of successful VMI adoption and the relationship in the supply chain with an empirical automotive industry case. The results show that the collaboration and coordination between customer and supplier and infrastructure of the information-sharing are the important dimensions to add value to the supply chain and to enhance customer satisfaction.

An Integrated Pricing and Deteriorating Model and a Hybrid Algorithm for a VMI (Vendor-Managed-Inventory) Supply Chain

This paper studies a vendor-managed-inventory (VMI) supply chain where a manufacturer, as a vendor, procures a type of nondeteriorating raw material to produce a deteriorating product, and distribute it to multiple retailers. The price of the product offered by one retailer is also influenced by the prices offered by other retailers because consumers can choose the product from any of the retailers. This paper is one of the first papers that propose an integrated model to study the influence of pricing and deterioration on the profit of such a VMI system. A hybrid approach combining genetic algorithms and an analytical method is developed for efficiently determining the optimal price of the product of each retailer, the inventory policies of the product and the raw material. Our results of a detailed numerical study show that parameters related to the market and deterioration have significant influences on the profit of the VMI system. However, different from common intuition, we find that an increase in the substitution elasticity of the product among different retailers can bring an increase in the retail prices of the product, while the increase of the market scale can reduce the retail prices.

Information Flow Management of Vendor-Managed Inventory System in Automobile Parts Inbound Logistics Based on Internet of Things

Reducing inventory levels is a major supply chain management challenge in automobile industries. With the development of information technology new cooperative supply chain contracts emerge such as Vendor-Managed Inventory (VMI). This research aims to look at the literature of information management of VMI and the Internet of Things, then analyzes information flow model of VMI system. The paper analyzes information flow management of VMI system in automobile parts inbound logistics based on the environment of Internet of Things.

Neural networks based vendor-managed forecasting: a case study

Vendor-managed inventory (VMI) is a collaborative supply chain management practice adopted by many organisations. For making inventory-related decisions an accurate forecast is needed. Traditional forecasting models provide close but not accurate forecasts. In the recent years, decision support tools, like neural networks, are used for making an accurate forecast. This paper presents a case study of a small enterprise where a vendor-managed inventory pact was in force between enterprise and a retailer. In the study, various neural networks were used for demand forecasting. The results of neural network based forecasts are found and compared on various fronts. Multi-criteria decision-making tools are adopted for comparing and verifying the results. Study shows that even small enterprise could adopt the simple VMI system by using properly trained neural network and obtain substantial saving in inventory and costs.

A Reinforcement Learning Approach for Inventory Replenishment in Vendor-Managed Inventory Systems With Consignment Inventory

:In a Vendor-Managed Inventory (VMI) system, the supplier makes decisions of inventory management for the retailer; the retailer is not responsible for placing orders. There is a dearth of optimization models for replenishment strategies for VMI systems, and the industry relies on well-understood, but simple models, e.g., the newsvendor rule. In this article, we propose a methodology based on reinforcement learning, which is rooted in the Bellman equation, to determine a replenishment policy in a VMI system with consignment inventory. We also propose rules based on the newsvendor rule. Our numerical results show that our approach can outperform the newsvendor.

Evaluating the effects of distribution centres on the performance of vendor-managed inventory systems

Abstract This paper evaluates the effects of the distribution centre (DC) in a vendor-managed inventory (VMI) system comprising one manufacturer, one DC and n retailers. Adopting the order-up-to-level (OUL) replenishment policy, the system aims to maximize the overall system profit. We propose a model to evaluate the system performance by considering the scale of the distribution network, influential cost factors, demand distribution, planning horizon, and facility locations. From the viewpoint of a supply chain, we examine the DC’s effects on the system in terms of net profit. Our findings reveal that the DC has effects on demand variance and system profit, and there are some dominant factors that affect the overall system performance. The DC may lead to different system performance under a variety of cost factors, and in some situations, the DC may negatively affect system performance. We also suggest some innovative uses of the DC’s location to help enhance system performance.

Analysis of vendor managed inventory practices for greater supply chain performance

For a globalised supply chain to be responsive, the firm should have the ability to meet short lead times, respond to wide ranges of quantities demanded, handle a large variety of products, build highly innovative products and meet a very high service level. Vendor managed inventory (VMI) is one such supply chain practice where the vendor is given the sole responsibility to monitor and manage the inventory of the retailer. This paper attempts to analyse this supply chain practice and illustrate the key elements of this system and the role it plays in the overall supply chain. The benefits and risks of the VMI system are also analysed. The design and implementation steps for this supply chain practice are extensively reviewed. The analysis of industries which would benefit from implementing this system is also conducted. An investigation is attempted to see if any industries in the UAE are using VMI.

An investigation of vendor-managed inventory application in supply chain: the EOQ model with shortage

Recent researches have shown the importance of improving the supply chain competitiveness by means of strategic alliances. This study considers the retailer–supplier partnership through a vendor-managed inventory (VMI) system and develops an analytical model to explore the effect of important supply chain parameters on the cost savings realized from collaborative initiatives. This model is developed for a two-level supply chain consisting of a single supplier and a single retailer and examines the inventory management practices before and after implementation of VMI. The results of analytical examination show that VMI implementation in economic order quantity model when shortage is backlogged sometimes has the ability to reduce total costs of supply chains. Three numerical examples are also given to support this claim.

Developing a two-echelon mathematical model for a vendor-managed inventory (VMI) system

Vendor-managed inventory (VMI) system is a mechanism where the supplier creates the purchase orders based on the demand information exchanged by the retailer/customer. In this paper, the performance of the traditional and VMI system is compared. Mathematical modeling is applied and total inventory cost in the supply chain is used as the performance measure. The supply chain is considered in two levels, i.e., buyer and supplier, with the assumption that the supplier faces only one buyer as the contract party. Since none of the previous works quantitatively directed the practitioners to select the traditional or VMI system, the extent point is introduced in which the difference in total cost of both systems is minimal. It is applied to investigate how increasing or reducing the related parameters changes total cost of two systems with respect to each other. A numerical example and sensitivity analysis are provided to illustrate the theory and derive the extent points and percentage of difference in total cost of the traditional and VMI system. The results show that VMI works better and delivers lower cost in all conditions including back order, and as one goes farther from the extent point, the application of VMI is more justified.

An analytical study of the modification ability of distribution centers

This paper considers a two-level vendor managed inventory (VMI) system comprising a distribution center (DC) and a retailer. Both the DC’s and the retailer’s replenishment decisions follow the order-up-to-level policy and aim at maximizing the profit of the overall system. We critically examine the potential of the DC’s ability to modify delivery decisions, identify and quantify the cost factors that influence the DC’s modification ability, establish a relationship between the DC’s location and its modification ability, and show the trade-off between the DC’s modification ability and related costs. Our analysis provides a new insight into the role of the DC and reveals the full potential of the VMI system. Our findings and their practical implications, demonstrated with the aid of computational examples, are helpful for enhancing the practice of VMI at both strategic and operational levels.

A Stackelberg game and its improvement in a VMI system with a manufacturing vendor

Vendor managed inventory (VMI) is an inventory management strategy to let a vendor manage his retailers’ inventories, which makes the vendor have the opportunity to obtain some inventory and market-related information of his retailers. This paper discusses how the vendor can take advantage of this information for increasing his own profit by using a Stackelberg game in a VMI system. The vendor here is a manufacturer who procures raw materials to produce a finished product and supplies it at the same wholesale price to multiple retailers. The retailers then sell the product in independent markets at retail prices. Solution procedures are developed to find the Stackelberg game equilibrium that each enterprise is not willing to deviate from for maximizing his own profit. The equilibrium makes the manufacturer benefited, and the retailers’ profits maximized. The equilibrium can then be improved for further benefiting the manufacturer and his retailers if the retailers are willing to cooperate with the manufacturer by using a cooperative contract. Finally, a numerical example and the corresponding sensitivity analysis are given to illustrate that: (1) the manufacturer can benefit from his leadership, and monopolize the added profit of the VMI system in some cases; (2) The manufacturer can further improve his own profit, and then the retailers’ profits by the cooperative contract, as compared to the Stackelberg equilibrium; (3) market and raw material related parameters have significant influence on every enterprise’s net profit.

Evaluating vendor-managed inventory (VMI) in non-traditional environments using simulation

This study provided empirical evidence that sufficient economic benefits could be achieved with the use of a technology-enabled vendor-managed inventory (VMI) system in a unique chain such that a firm could justify spending the money necessary to create the infrastructure to support it. The models, while based on a specific type of business, were still generic enough that the results could be generalized to many types of highly distributed, variable demand delivery systems. The study compared the costs of inventory systems used in practice by rural farm cooperatives to possible technology-enabled systems. Fuel delivery data from two agricultural cooperatives in Nebraska provided the basis for this study. The data were used to construct demand distribution for discrete event simulation models of conventional cooperative fuel delivery systems. The results generated from this base model were compared to the operating costs of a technology-enabled system under a variety of VMI implementation alternatives. Performance was measured in inventory costs, delivery costs and stockouts. The study found that VMI alternatives outperformed traditional delivery methods and that the use of such technology could be economically justified in many logistics problems dealing with variable demand patterns through the cost savings created.