Developing a two-echelon mathematical model for a vendor-managed inventory (VMI) system (original) (raw)
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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.
2010
Vendor managed inventory (VMI) is a supply chain initiative where the supplier assumes the responsibility for managing inventories using advanced communication means such as online messaging and data retrieval system. A well collaborated vendor manage inventory system can improve supply chain performance by decreasing the inventory level and increasing the fill rate. This paper investigates the implementation of vendor managed inventory systems in a consumer goods industry. We consider (r, Q) policy for replenishing its inventory. The objective of work is to minimize the inventory across the supply chain and maximize the service level. The major contribution of this work is to develop a spreadsheet model for VMI system, Evaluation of Total inventory cost by using spreadsheet based method and Analytical method, Quantifying inventory reduction, Estimating service efficiency level, and validating the VMI spread sheet model with randomly generated demand. In the application, VMI as an i...
A supply chain model of vendor managed inventory
Transportation Research Part E-logistics and Transportation Review, 2002
This research evaluates how vendor managed inventory (VMI) affects a supply channel. Specifically, VMI always leads to a higher buyer's profit, but supplier's profit varies. In the short-term, VMI is found to reduce total costs of the channel system, but under certain cost conditions between buyer and supplier, it could decrease the purchasing price and supplier's profit. In the long-run, it could more likely increase supplier's profit than in the short-run. Finally, VMI is an effective supply chain strategy that can realize many of the benefits obtainable only in a fully integrated supply chain. Ó
The International Journal of Advanced Manufacturing Technology, 2010
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.
Vendor managed inventory model for single-vendor multi-retailer supply chains
European Journal of Operational Research, 2010
Vendor managed inventory is an integrated approach for retailer-vendor coordination, according to which the vendor decides on the appropriate inventory levels within bounds that are agreed upon in a contractual agreement between vendor and retailers. In this contract, the vendor usually incurs a penalty cost for items exceeding these bounds. The purpose of this paper is to develop a model for a supply chain with single vendor and multiple retailers under VMI mode of operation. This model explicitly includes the VMI contractual agreement between the vendor and retailers. The developed model can easily describe supply chains with capacity constraints by selecting high penalty cost. Theorems are established to alleviate the complexity of the model and render the mathematics tractable. Moreover, an efficient algorithm is devised to find the global optimal solution. This algorithm reduces the computational efforts significantly. In addition, numerical experiments are conducted to show the utility of the proposed model.
Firms such as Wal-Mart and Campbell's Soup have successfully implemented vendor managed inventory (VMI). Articles in the trade press and academic literature often begin with the premise that VMI is 'beneficial'; but beneficial to which party and under what conditions? We consider in this paper a vendor V that manufactures a particular product at a unique location. That item is sold to a single retailer, the customer C. Three cases are treated in detail: independent decision making (no agreement between the parties); VMI, whereby the supplier V initiates orders on behalf of C; and central decision making (both vendor and customer are controlled by the same corporate entity). Values of some cost parameters may vary between the three cases and each case may cause a different actor to be responsible for particular expenses. Under a constant demand rate, optimal solutions are obtained analytically for the customer's order quantity, the vendor's production quantity, hence the parties' individual and total costs in the three cases. Inequalities are obtained to delineate those situations in which VMI is beneficial.
A model for vendor managed inventory by applying the economic order quantity with fuzzy demand
International Journal of Enterprise Network Management, 2011
This paper presented a decision support model for VMI system by applying the economic order quantity (EOQ) with fuzzy demand. The model of fuzzy EOQ that has been developed in this study is intended to accommodate the fuzzy demand. Result of the study shows that the optimal quantity of fuzzy EOQ is influenced by the value of Δ 1 and Δ 2. It was known that the value of order quantity (q) will be increased if the decision-makers getting more optimistic regarding the upper limit of the sales forecast implementation. The model formulation that has been introduced fuzzy number for demand to accommodate uncertainty situation.
The Integrated Deterministic Model for a Vendor Managed Inventory in a Two-Stage Supply Chain
Jurnal Teknologi, 2015
In a two-stage supply chain system, vendor managed inventory (VMI) policies is an integrating decisions between a supplier and his retailers. The supplier assumes the responsibility of maintaining inventory at its retailers and ensuring that they will not run out of stock at any moment. This paper discusses an optimization approach, considering the model of static demand on the inbound as well as the outbound inventory for a two-stage supply chain implementing VMI. In the proposed solutions for coordinating the single-warehouse multiple-retailers (SWMR) system, retailers are first clustered to minimize the within-cluster travel costs and distances and are then replenished using an optimal direct shipping strategy satisfying some additional restrictions.
Analysis of vendor managed inventory practices for greater supply chain performance
International Journal of Logistics Economics and Globalisation, 2010
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.