Title: Vendor-managed inventory models for items with imperfect quality

Authors: Mohammed A. Darwish; Osama M. Odah; Suresh Kumar Goyal

Addresses: Department of Industrial and Management Systems Engineering, College of Engineering and Petroleum, Kuwait University, P.O. Box 5969, 13060, Safat, Kuwait ' Department of Industrial and Management Systems Engineering, College of Engineering and Petroleum, Kuwait University, P.O. Box 5969, 13060, Safat, Kuwait ' John Molson School of Business, Concordia University, 1455 De Maisonneve Blvd., West Montreal, Quebec, H3G 1M8, Canada

Abstract: In this paper, two models for supply chain under VMI settings are developed when the incoming lot of items contains a fraction of non-conforming items. The first model is for a decentralised case where the vendor's profit is maximised. However, there is significant extra profit to be realised by optimising the performance of the entire supply chain. Therefore, another model for centralised supply chain under VMI configuration is introduced. This model seeks to optimise the system total expected profit. The additional profit realised by implementing the integrated solution is distributed between vendor and retailer. The distribution scheme is according to some weight such that no party obtains less profit than that generated by decentralised VMI model. Usually, this weight reflects the bargaining positions of the vendor and retailer. The optimal solutions are characterised by finding all Karush-Kuhn-Tucker points of the profit functions. Based on these Karush-Kuhn-Tucker points, efficient algorithms are devised to solve the models.

Keywords: SCM; supply chain management; vendor-managed inventory; VMI; imperfect quality; modelling.

DOI: 10.1504/IJOR.2013.057484

International Journal of Operational Research, 2013 Vol.18 No.4, pp.401 - 433

Published online: 29 Jul 2014 *

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