ABSTRACT
This paper examines the effectiveness of a vendor-managed inventory (VMI) system in a decentralised supply chain. Specifically, a two-tier supply chain with one vendor and multiple buyers is analysed under two replenishment models – an LMI system and a VMI system with vendor coordination that includes retailer incentives and cross-docking at the vendor. The impact of supply chain design parameters (number of retailers and retailer heterogeneity), and a policy parameter (shipment frequency) on the effectiveness of the VMI system is studied. Using an analytical model as well as numerical experiments, we find that incentive-aligned contractual arrangements can be made between the vendor and the retailers through reallocation of fixed shipping cost savings arising from VMI.
Disclosure statement
No potential conflict of interest was reported by the authors.
ORCID
Joong Y. Son http://orcid.org/0000-0001-9454-8891