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Optimal selection of retailers for a manufacturing vendor in a vendor managed inventory system

Author

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  • Yu, Yugang
  • Hong, Zhaofu
  • Zhang, Linda L.
  • Liang, Liang
  • Chu, Chengbin

Abstract

A Vendor Managed Inventory (VMI) system consists of a manufacturing vendor and a number of retailers. In such a system, it is essential for the vendor to optimally determine retailer selection and other related decisions, such as the product’s replenishment cycle time and the wholesale price, in order to maximize his profit. Meanwhile, each retailer’s decisions on her willingness to enter the system and retail price are simultaneously considered in the retailer selection process. However, the above interactive decision making is complex and the available studies on interactive retailer selection are scarce. In this study, we formulate the retailer selection problem as a Stackelberg game model to help the manufacturer, as a vendor, optimally select his retailers to form a VMI system. This model is non-linear, mixed-integer, game-theoretic, and analytically intractable. Therefore, we further develop a hybrid algorithm for effectively and efficiently solving the developed model. The hybrid algorithm combines dynamic programming (DP), genetic algorithm (GA) and analytical methods. As demonstrated by our numerical studies, the optimal retailer selection can increase the manufacturer’s profit by up to 90% and the selected retailers’ profits significantly compared to non-selection strategy. The proposed hybrid algorithm can solve the model within a minute for a problem with 100 candidate retailers, whereas a pure GA has to take more than 1h to solve a small sized problem of 20 candidate retailers achieving an objective value no worse than that obtained by the hybrid algorithm.

Suggested Citation

  • Yu, Yugang & Hong, Zhaofu & Zhang, Linda L. & Liang, Liang & Chu, Chengbin, 2013. "Optimal selection of retailers for a manufacturing vendor in a vendor managed inventory system," European Journal of Operational Research, Elsevier, vol. 225(2), pages 273-284.
    • Handle: RePEc:eee:ejores:v:225:y:2013:i:2:p:273-284
    DOI: 10.1016/j.ejor.2012.09.044
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    References listed on IDEAS

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    2. Linda Zhang & Gang D.U. & Jun W.U. & Yujie M.A., 2020. "Joint production planning, pricing and retailer selection with emission control based on Stackelberg game and nested genetic algorithm," Post-Print hal-03276837, HAL.
    3. Bai, Qingguo & Gong, Yeming (Yale) & Jin, Mingzhou & Xu, Xianhao, 2019. "Effects of carbon emission reduction on supply chain coordination with vendor-managed deteriorating product inventory," International Journal of Production Economics, Elsevier, vol. 208(C), pages 83-99.
    4. Govindan, Kannan, 2015. "The optimal replenishment policy for time-varying stochastic demand under vendor managed inventory," European Journal of Operational Research, Elsevier, vol. 242(2), pages 402-423.
    5. Tsao, Yu-Chung & Lu, Jye-Chyi & An, Na & Al-Khayyal, Faiz & Lu, Richard W. & Han, Guanghua, 2014. "Retailer shelf-space management with trade allowance: A Stackelberg game between retailer and manufacturers," International Journal of Production Economics, Elsevier, vol. 148(C), pages 133-144.
    6. Sadeghi, Javad & Mousavi, Seyed Mohsen & Niaki, Seyed Taghi Akhavan & Sadeghi, Saeid, 2014. "Optimizing a bi-objective inventory model of a three-echelon supply chain using a tuned hybrid bat algorithm," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 70(C), pages 274-292.
    7. Tian, Xiaoyu & Zhang, Zhi-Hai, 2019. "Capacitated disassembly scheduling and pricing of returned products with price-dependent yield," Omega, Elsevier, vol. 84(C), pages 160-174.
    8. Williams, Brent D. & Waller, Matthew A. & Ahire, Sanjay & Ferrier, Gary D., 2014. "Predicting retailer orders with POS and order data: The inventory balance effect," European Journal of Operational Research, Elsevier, vol. 232(3), pages 593-600.
    9. Poormoaied, Saeed & Atan, Zümbül, 2020. "A multi-attribute utility theory approach to ordering policy for perishable items," International Journal of Production Economics, Elsevier, vol. 225(C).
    10. Lin, Feng & Jia, Tao & Wu, Feng & Yang, Zhen, 2019. "Impacts of two-stage deterioration on an integrated inventory model under trade credit and variable capacity utilization," European Journal of Operational Research, Elsevier, vol. 272(1), pages 219-234.

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