Supply chain coordination with vendor-managed inventory (VMI) arrangements

This study primarily targets on forming a standard vendor-managed inventory (VMI) contract (a, h) inspired by the real case, and examining whether or not it is able to achieve channel coordination under stochastic demands. This type of proposed contract (a, h) is essentially unique from those existing supply contracts because the wholesale price w doesn’t exist, both the supplier as well as the retailer are only able to profit from the realized sales. The supplier, as a Stackelberg leader, offers the contractual terms of a and h to the retailer, where a is a profit fraction of the realized sales which the retailer makes, h is an inventory subsidy paid by the retailer for per unit unsold at the end of a selling season. VMI-arrangements lead to authorizing the retailer to determine the targeted sales and concentrate on generating sales but delegating several administrative burdens of monitoring inventory and performing fulfillments to the supplier, who bears all the linked inventory and distribution expenses. All the info relating to buyer demands, inventory statues and price parameters is really a typical understanding to both the trading partners. In a supply chain with 1 supplier and 1 retailer with stochastic demands, the retailer determines the optimal targeted sales to optimize its anticipated earnings under a specific contract (a, h); the supplier properly anticipates how the retailer decides the targeted sales for any a and h, and would rather set the values of a and h to extract far more channel’s earnings.

Contents

1 Introduction
1.1 Supply chain coordination
1.2 The newsvendor problem
1.3 An example
1.4 Vendor-managed inventory
1.5 A vendor-managed inventory contract
1.6 Aim and objectives
1.7 Organization of the thesis
2 Preliminaries
2.1 Notations and assumptions
2.2 The centralized channel model
2.3 The wholesale price contract – W model
2.4 The revenue-sharing contract – R model
2.5 The buy-back contract – B model
2.6 Other contract models
2.7 Summary
3 Coordinating a supply chain with a vendor-managed inventory (VMI) contract (α, h)
3.1 The model
3.2 The optimal decision
3.3 Channel coordination
3.4 Supply chain efficiency
3.5 Comparison analysis
3.6 Discussion
4 Coordinating two competitive retailers when demand is service-dependent and stochastic
4.1 The model
4.2 The retailers’ equilibrium decisions
4.3 The supplier’s optimal decisions
4.4 Channel coordination
4.5 Discussion
4.6 An additive demand model
5 Conclusion remarks
5.1 Summary………

Source: City University of Hong Kong

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