Title: Vendor Managed Inventory models under contractual agreement

Authors: M.A. Darwish; O.M. Odah; S.K. 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: The purpose of this paper is to explicitly include a contract between the vendor and retailer in a two-layer supply chain under VMI initiative. Two models are developed, one for a decentralised supply chain where the vendor and retailer determine their operating policies independently. The other model, however, is for centralised supply chain under VMI contract. The saving realised by implementing VMI initiative is distributed between vendor and retailer according to some weight such that no party incurs more cost than that generated by the decentralised supply chain. Also, solution procedures are devised based on Kuhn-Tucker conditions.

Keywords: operational research; two-layer supply chains; contracts; contractual agreements; vendor managed inventory; VMI; supply chain management; SCM.

DOI: 10.1504/IJMOR.2012.046376

International Journal of Mathematics in Operational Research, 2012 Vol.4 No.2, pp.175 - 196

Published online: 23 Dec 2014 *

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