How much does VMI better than RMI in a global environment?

Haiyan Yu, Linglang Tang, Yinfeng Xu and Yong Wang

International Journal of Production Economics, 2015, vol. 170, issue PA, 268-274

Abstract: Vendor-managed inventory (VMI) strategy can improve the performance of supply chain by deciding more appropriate order quantity, compared with retailer-managed inventory (RMI). We present an EOQ based model to study the performance of VMI in a global environment, in which the retailer faces demand uncertainty (distribution of demand is unknown yet) and the supplier faces exchange rate uncertainty. We prove the performance ratio of the long-run average costs under VMI to that under RMI in theory. Our study suggests that VMI does not perform better than RMI all the time when VMI cannot reduce the ordering/delivery/holding cost, and VMI performs worse first and better later as the degree of exchange rate fluctuation increases. But it is worth to apply VMI strategy if the ordering/delivery/holding cost can be reduced.

Keywords: Vendor managed inventory; Retailer managed inventory; EOQ; Demand uncertainty; Performance ratio (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:170:y:2015:i:pa:p:268-274

DOI: 10.1016/j.ijpe.2015.10.004

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