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The optimal replenishment policy for time-varying stochastic demand under vendor managed inventory

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  • Govindan, Kannan

Abstract

A Vendor Managed Inventory (VMI) partnership places the responsibility on the vendor (rather than on buyers) to schedule purchase orders for inventory replenishment in the supply chain system. In this research, the supply chain network considers the Silver–Meal heuristic with an augmentation quantity replenishment policy between both traditional and VMI systems. We consider time-varying stochastic demand in two-echelon (one vendor, multiple retailers) supply chains. This paper seeks to find the supply chain that minimizes system cost through comparing performance between traditional and VMI systems. A mathematical model is developed, and total supply chain cost is used as the measure of comparison. The models are applied in both traditional and VMI supply chains based on pharmaceutical industry data, and we focus on total cost difference compared through the use of Adjusted Silver–Meal (ASM) and Least Unit Cost heuristics. Finally, a numerical example and a sensitivity analysis are also illustrated to show the applicability of the model.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:ejores:v:242:y:2015:i:2:p:402-423
    DOI: 10.1016/j.ejor.2014.09.045
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    5. Xianpei Hong & Wang Chunyuan & Lei Xu & Ali Diabat, 2016. "Multiple-vendor, multiple-retailer based vendor-managed inventory," Annals of Operations Research, Springer, vol. 238(1), pages 277-297, March.
    6. Sazvar, Z. & Mirzapour Al-e-hashem, S.M.J. & Govindan, K. & Bahli, B., 2016. "A novel mathematical model for a multi-period, multi-product optimal ordering problem considering expiry dates in a FEFO system," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 93(C), pages 232-261.
    7. Sumon Sarkar & Sunil Tiwari & B. C. Giri, 2022. "Impact of uncertain demand and lead-time reduction on two-echelon supply chain," Annals of Operations Research, Springer, vol. 315(2), pages 2027-2055, August.
    8. Fattahi, Mohammad & Mahootchi, Masoud & Govindan, Kannan & Moattar Husseini, Seyed Mohammad, 2015. "Dynamic supply chain network design with capacity planning and multi-period pricing," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 81(C), pages 169-202.
    9. Reza Maihami & Behrooz Karimi & Seyyed Mohammad Taghi Fatemi Ghomi, 2017. "Effect of two-echelon trade credit on pricing-inventory policy of non-instantaneous deteriorating products with probabilistic demand and deterioration functions," Annals of Operations Research, Springer, vol. 257(1), pages 237-273, October.
    10. Liu, Ming & Zhang, Zhe & Zhang, Ding, 2017. "Logistics planning for hospital pharmacy trusteeship under a hybrid of uncertainties," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 101(C), pages 201-215.
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