A vendor managed inventory scheme for supply chain coordination under multiple heterogeneous retailers

Abstract

This paper addresses the problem of supply chain coordination in the context of Vendor Managed Inventory (VMI) involving one supplier selling to multiple downstream heterogeneous retailers. The VMI contract considers a penalty scheme wherein, the retailers impose a per unit penalty cost on the supplier for exceeding the shipment from a pre-determined upper limit of inventory. The proposed model comes up with an optimal replenishment scheme wherein the supplier increases the shipment batch size such that none of the retailers are worse off. We compare the proposed replenishment model with joint economic lot size (JELS) and other VMI models, reflecting the improvement over those models in terms of costs. We also show the equivalence of the proposed replenishment model with JELS model having unequal reorder intervals.