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Multiple-vendor, multiple-retailer based vendor-managed inventory

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Abstract

Vendor-managed inventory is a coordinated system where a vendor decides about the retailer’s replenishment quantity and time. This work studies a two-echelon distribution work composed of multiple vendors and retailers in traditional and vendor-managed inventory systems where unsatisfied demands are lost sales. We also consider that the retailers’ demand is stochastic following a uniform distribution. The mathematical models are developed and applied in vendor-managed inventory and traditional systems. Under the traditional supply chain, the vendor incurs the cost of holding and production setup, while a retailer incurs expenses for inventory holding, ordering, transportation and lost sales. In a vendor-managed inventory system, as the vendor is responsible for his retailers, the retailer’s costs are transferred to the vendor. We aim to identify benefits of vendor-managed inventory. The total cost per unit time is used as a comparable measure between vendor-managed inventory and traditional systems. Numerical examples and a sensitivity analysis of key parameters include the vendor’s setup cost and holding cost; the retailer’s transportation and ordering costs are presented in both vendor-managed inventory and traditional systems. The results illustrate that vendor-managed inventory total system inventory cost is lower than a traditional system where shortage is allowed.

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Acknowledgments

This research was supported in part by National Natural Science Foundation of China (Grant No. 71302005), the major Program of the National Social Science Fund of China (Grant No. 13&ZD147), and Fundamental Research Funds for the Central Universities (Grant No. 2662014BQ048), and Research Project of Department of Education of Hubei Province (Grant No. Q20141803).

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Authors and Affiliations

  1. College of Economics and Management, Huazhong Agricultural University, Wuhan, 430070, People’s Republic of China

    Xianpei Hong

  2. Department of Technology and Innovation, University of Southern Denmark, Odense, Denmark

    Wang Chunyuan

  3. School of Management, Tianjin University of Technology, Tianjin, 300384, People’s Republic of China

    Lei Xu

  4. Department of Engineering Systems and Management, Masdar Institute of Science and Technology, Abu Dhabi, United Arab Emirates

    Ali Diabat

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  1. Xianpei Hong
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  2. Wang Chunyuan
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  3. Lei Xu
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  4. Ali Diabat
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Correspondence to Lei Xu.

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Hong, X., Chunyuan, W., Xu, L. et al. Multiple-vendor, multiple-retailer based vendor-managed inventory. Ann Oper Res 238, 277–297 (2016). https://doi.org/10.1007/s10479-015-2040-0

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