Supply chain coordination in vendor-managed inventory systems with stockout-cost sharing under limited storage capacity

Jun-Yeon Lee, Richard K. Cho and Seung-Kuk Paik

European Journal of Operational Research, 2016, vol. 248, issue 1, 95-106

Abstract: We examine vendor-managed inventory (VMI) systems with stockout-cost sharing between a supplier and a customer using an EOQ model with shortages allowed under limited storage capacity, in which a stockout penalty is charged to the supplier when stockouts occur at the customer. In the VMI systems the customer and the supplier minimize their own costs in designing a VMI contract and making replenishment decisions, respectively. We compare the VMI systems with an integrated supplier–customer system where the supply chain total cost is minimized. We show that VMI with stockout-cost sharing and the integrated supplier–customer system result in the same replenishment decisions and system performance if and only if the supplier's reservation cost is equal to the minimum supply chain total cost of the integrated system. On the other hand, we also show how VMI along with fixed transfer payments as well as stockout-cost sharing can lead to the supply chain coordination regardless of the supplier's reservation cost. We also provide several interesting computational results.

Keywords: Supply chain management; vendor-managed inventory; supply chain coordination; EOQ with shortages allowed; limited storage capacity (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:248:y:2016:i:1:p:95-106

DOI: 10.1016/j.ejor.2015.06.080

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