Vendor managed inventory with consignment stock for supply chain with stock- and price-dependent demand

This paper presents a single vendor-single buyer coordinated model. The vendor produces a single deteriorating item and transfers it to the buyer in equal shipments. The model is based on vendor managed inventory with consignment stock (VMI-CS) agreement in which the vendor uses the buyer's warehouse. The buyer stocks items both on his shelf and in his warehouse. The demand is assumed to be linearly sensitive to inventory level and selling price. The objective is to determine variables that maximise the total profit. An exact solution procedure is proposed to find the optimal solution. Numerical results show that supply chain members will benefit from the advantages of economies of scale in coordinated model with VMI-CS policy.