Optimizing service level, price, and inventory decisions for a supply chain with retailers' competition and cooperation under VMI strategy

In a vendor-managed inventory (VMI) system, a manufacturing vendor manages their retailer inventories. Studies on VMI-type supply chains mostly have not considered competition between retailers. There are few works on the price competition; however, to the best of the authors' knowledge, none of the papers formulated a service competition strategy. The service level is one of the competitive factors among competing retailers. Sometimes retailers choose to compete cooperatively instead of competing independently with the manufacturer. The present work investigates service, price, and inventory decisions under retailers' competition and cooperation. Considering the manufacturer and retailers as the leader and followers, respectively, a Stackelberg game model of the problem is developed. The present study proposes a solution algorithm to search the Stackelberg-Nash equilibrium in the retailer cooperation and retailer independence models. The algorithm is numerically demonstrated to explore the impacts of decision parameters. To validate the model, a number of parameters are subjected to sensitivity analyses. It was found that a higher self-service (cross-service) level parameter would lead to higher (lower) profits of the retailer and manufacturer and the total profit in the two models. Retailer cooperation enhances retailer performance; however, manufacturer and system profits decline. Furthermore, when retailers cooperate, they are motivated to offer lower service levels.

Automated summary

This study investigates service, price, and inventory decisions under competition and cooperation between retailers in a vendor-managed inventory system. The results show that retailer cooperation can enhance retailer performance while reducing manufacturer and system profits, and motivates retailers to offer lower service levels.