Title: Vendor managed inventory models for single-vendor multi-retailer supply chains with quality consideration

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 ' 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, efficient algorithms are devised to solve 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 non-conforming items and, thus, inspection is performed on the incoming lot before it is delivered the retailers. In addition, we assume that non-conforming 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; VMI models; multiple retailers; inventory management; quality; decentralised supply chains; centralised supply chains; inventory levels; profit distribution.

DOI: 10.1504/IJISE.2015.068996

International Journal of Industrial and Systems Engineering, 2015 Vol.20 No.1, pp.22 - 57

Available online: 24 Apr 2015 *

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