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

Addresses: 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.

DOI: 10.1504/IJISE.2014.065620

International Journal of Industrial and Systems Engineering, 2014 Vol.18 No.4, pp.499 - 527

Received: 29 Apr 2013
Accepted: 04 Jul 2013
Published online: 07 Nov 2014 *

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