Title: Vendor managed inventory models for single-vendor multi-retailer supply chains with quality consideration
Authors: M.A. Darwish; O.M. Odah; S.K. Goyal
Department of Industrial and Management Systems Engineering, College of Engineering and Petroleum, Kuwait University, P.O. Box 5969, 13060, Safat, Kuwait
Proctor and Gamble, Modern Industries Company, 2nd Industrial City, P.O. Box 4927, Dammam 31412, Saudi Arabia
John Molson School of Business, Concordia University, 1455 De Maisonneve Blvd. West, Montreal, Quebec, H3G 1M8, Canada
Abstract: In this paper, quality of items is incorporated in two VMI models for a single-vendor multi-retailer supply chain. The first model is for a decentralised supply chain where the vendor's expected profit is maximised. The other model, however, is for a centralised supply chain where the expected system profit is maximised. It is assumed that the lot received by vendor contains a random number of nonconforming items and, thus, inspection is performed on the incoming lot before it is delivered to retailers. In addition, we assume that nonconforming items are sold as a single batch to a secondary market at a reduced price. We also assume that the inspection process is perfect and is performed at a finite rate. In the proposed models, we incorporate a VMI contract which includes an upper limit on retailer's inventory level. In order to encourage cooperation between vendor and retailers, we propose a scheme that distributes the extra profit obtained by the integrated solution between the vendor and retailers.
Keywords: supply chain management; SCM; vendor managed inventory; multiple retailers; inventory management; inventory modelling; VMI models; item quality; vendor profit; system profit; cooperation.
Int. J. of Industrial and Systems Engineering, 2014 Vol.18, No.4, pp.499 - 527
Available online: 31 Oct 2014