Benefits of vendor managed inventory policy in a manufacturer-retailer supply chain

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2009

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Erdoğdu, Özen

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Vendor Managed Inventory (VMI) policy has been widely used in various supply chains due to the benefits such as lower inventory levels and costs of retailer, and less frequent stock outs. In this study, the benefits of VMI policy in a manufacturer-retailer setting are analyzed under three different scenarios (Traditional Decision Making, VMI agreement and Centralized Decision Making). A manufacturer that produces a particular product is considered and that product is sold to a retailer operating under known demand forecasts. Under Traditional Decision Making System, each party is responsible for its own costs. Under VMI, manufacturer controls the replenishment decisions of the retailer and solves a Constrained Two-Echelon Lot Sizing Problem with Backordering. Under Centralized Decision Making, manufacturer and retailer act like merged, the problem under consideration is Two-Echelon Single Item Lot Sizing with Backordering. Through an extensive numerical study, three different scenarios’ results are compared and the conditions beneficial under VMI are identified. Under VMI, a Lagrangean Relaxation algorithm is proposed to reduce solution time. In terms of computational effort, solution times of proposed algorithm and MIP model are compared.

Subject Keywords

Industrial engineering., Production Management.

URI

http://etd.lib.metu.edu.tr/upload/2/12610456/index.pdf
https://hdl.handle.net/11511/18418

Collections

Graduate School of Natural and Applied Sciences, Thesis

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Citation Formats

Ö. Erdoğdu, “Benefits of vendor managed inventory policy in a manufacturer-retailer supply chain,” M.S. - Master of Science, Middle East Technical University, 2009.