Inventory management through vendor managed inventory in a supply chain with stochastic demand

Güneş, Hürdoğan
Vendor Managed Inventory (VMI) is a business practice in which vendors monitor their customers’ inventories, and decide when and how much inventory should be replenished. VMI has attracted a lot of attention due to its benefits. In this study, we analyze the benefits of VMI in a supply chain consisting of a single retailer and a single capacitated supplier under stochastic demand. We propose a VMI setting and compare the vendor managed system with the traditional system to quantify the benefits of VMI. In our proposed VMI system, the retailer shares the inventory level information with the supplier, which is not available in traditional system; and the supplier is responsible to keep the retailer’s inventory level between the specified minimum and maximum values, called (z,Z) levels, set by a contract. We examine the benefits of such a VMI system for each member and for the overall chain; and analyze the effects of system parameters on these benefits. The performance of VMI in coordinating the overall chain is examined under different system parameters.