Journal of Korean Society of Industrial and Systems Engineering (산업경영시스템학회지)

Society of Korea Industrial and System Engineering (한국산업경영시스템학회)
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VMI with Upper Limit of Inventory for Vendor and Retailer

판매자와 구매자의 재고상한이 존재하는 VMI

  • Lee, Dongju (Department of Industrial & Systems Engineering, Kongju National University)
  • 이동주 (공주대학교 산업시스템공학과)
  • Received : 2017.08.04
  • Accepted : 2017.10.30
  • Published : 2017.12.31
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Abstract

Vendor Managed Inventory is a well-known vendor-retailer coordination approach in supply chain management where the vendor manages inventory of the retailer and determines the order interval and order quantity for the retailer. To consider practical situation, the upper limit of inventory for the retailer is set. If the inventory level for the retailer exceeds the upper limit, then the penalty cost is charged to the retailer. Furthermore, maximum allowable inventory level is set for the vendor to prevent the vendor from keeping much inventory. Single-vendor multi-retailer supply chain model with upper limit of inventory for vendor and retailers is studied. All the retailers' are assumed to have the common cycle time, and a vendor manages retailers' inventory and replenishes products. The mathematical formulation is introduced to minimize the total cost including the penalty cost violating the upper limit of inventory for retailers with the constraint of maximum allowable inventory level. The solution procedure based on Karush-Kuhn-Tucker (KKT) conditions is derived. KKT conditions are often applied to find an optimal solution of nonlinear programming problem with constraints. An illustrative example is used to show the application of the proposed solution procedure. Furthermore, sensitivity analysis is done to find out the relationship between maximum allowable inventory level and other values such as order quantity, the number of shipment, vendor's cost, retailer's cost, and total cost. As maximum allowable inventory level decreases, the number of shipment decreases but total cost increases. Order quantity has the trend of decline and is affected by the number of shipment.

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References

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