Title: Coordinating the VMI supply chain of deteriorating products through supply contract

Authors: Anyarin Sakrujiratham; Huynh Trung Luong

Addresses: Department of Industrial Systems Engineering, Asian Institute of Technology, Thailand ' Department of Industrial Systems Engineering, Asian Institute of Technology, Thailand

Abstract: This study considers a two-echelon supply chain with one vendor and one retailer for a deteriorating item under the vendor-managed inventory (VMI) policy. The study considers the time to deterioration follows a Weibull distribution, price-sensitive demand, and shortages are allowed and completely backlogged. We analyse the coordination of the VMI supply chain through a contract mechanism, i.e., a revenue-sharing contract. First, we formulate and compare the decentralised VMI and centralised models. Next, we propose a revenue-sharing contract to coordinate the decentralised VMI supply chain. The applicability of the proposed model is illustrated through numerical examples and sensitivity analyses. The results show that the supply chain's profit under the decentralised VMI system with a revenue-sharing contract increases and can reach the profit of the centralised system. The revenue-sharing contract can perfectly coordinate the VMI decentralised supply chain, increase the supply chain's profit significantly, and allocate the total supply chain profit to members fairly.

Keywords: vendor-managed inventory; VMI; deteriorating products; channel coordination; revenue-sharing contract.

DOI: 10.1504/IJLSM.2026.150959

International Journal of Logistics Systems and Management, 2026 Vol.53 No.1, pp.93 - 119

Received: 01 Jul 2023
Accepted: 17 Jul 2023
Published online: 06 Jan 2026 *

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