Journal
INTERNATIONAL JOURNAL OF LOGISTICS-RESEARCH AND APPLICATIONS
Volume 23, Issue 1, Pages 1-23Publisher
TAYLOR & FRANCIS LTD
DOI: 10.1080/13675567.2019.1568974
Keywords
Vendor-managed inventory (VMI); locally-managed inventory (LMI); collaborative replenishment; incentives
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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.
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