Stock Replenishment and Shipment Scheduling for Vendor-Managed Inventory Systems

Abstract

Vendor-managed inventory (VMI) is a supply-chain initiative where the supplier is authorized to manage inventories of agreed-upon stock-keeping units at retail locations. The benefits of VMI are well recognized by successful retail businesses such as Wal-Mart. In VMI, distortion of demand information (known as bullwhip effect) transferred from the downstream supply-chain member (e.g., retailer) to the upstream member (e.g., supplier) is minimized, stockout situations are less frequent, and inventory-carrying costs are reduced. Furthermore, a VMI supplier has the liberty of controlling the downstream resupply decisions rather than filling orders as they are placed. Thus, the approach offers a framework for synchronizing inventory and transportation decisions. In this paper, we present an analytical model for coordinating inventory and transportation decisions in VMI systems. Although the coordination of inventory and transportation has been addressed in the literature, our particular problem has not been explored previously. Specifically, we consider a vendor realizing a sequence of random demands from a group of retailers located in a given geographical region. Ideally, these demands should be shipped immediately. However, the vendor has the autonomy of holding small orders until an agreeable dispatch time with the expectation that an economical consolidated dispatch quantity accumulates. As a result, the actual inventory requirements at the vendor are partly dictated by the parameters of the shipment-release policy in use. We compute the optimum replenishment quantity and dispatch frequency simultaneously. We develop a renewaltheoretic model for the case of Poisson demands, and present analytical results.vendor-managed inventory, freight consolidation, renewal theory

Models for Supply Chains in E-Business

“…Lee et al (2000) study the value of information in a two-level supply chain with nonstationary end demand and show that value of information could be high, particularly in cases where demand may be correlated over time. The effect of vendor managed inventory (VMI) systems, where the buyer shares demand information with the supplier who, in turn, manages the buyer's inventory, have also been extensively studied by researchers (see Cetinkaya andCheung and.…”

A Dynamic Lot-Sizing Model with Demand Time Windows

“…In a representative practical situation, a third party logistics company provides warehousing and transportation for a manufacturer and guarantees TDD for outbound deliveries to the customers. Such an arrangement is particularly advantageous for effective vendor managed inventory where the vendor assumes responsibility for managing inventories at retailers using advanced data retrieval systems (Aviv and Federgruen 1998, Çetinkaya and Lee 1998, Parker 1996, and guarantees timely delivery via satisfying demand time window constraints specified by the retailers.…”

Stock management in hospital pharmacy using chance-constrained model predictive control

“…In the literature, other alternatives are also proposed. For example, [4] presents an analytical model for the coordination of inventory and transportation in supply-chain systems. In [5], a supply chain network model consisting of manufacturers and retailers, where the demand is random, is developed.…”