Vendor managed inventory with fixed shipping cost allocation

Son, Joong Y.; Ghosh, Subhadip

Vendor managed inventory with fixed shipping cost allocation

Author

Son, Joong Y.

Ghosh, Subhadip

Date

2019

Keywords

vendor-managed inventory, VMI, locally-managed inventory, LMI, collaborative replenishment, incentives

Abstract (summary)

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.

Publication Information

Joong Y. Son & Subhadip Ghosh (2019) Vendor managed inventory with fixed shipping cost allocation, International Journal of Logistics Research and Applications (Impact factor 2.828).