Coordinating a channel with a joint VMI and consignment contract for a deteriorating item and stock dependent demand

The aim of the paper is to coordinate a vertically distribution channel (one vendor multiple retailers) under joint vendor-managed inventory (VMI) and consignment contractual arrangement. The product is deteriorating in time at a constant rate and with stock-level dependent demand. We formulate the channel as a profit-maximization model and carry out equilibrium analysis to represent the performance the coordination mechanisms. In addition, the efficient frontier is constructed geographically to illustrate the feasible region of Pareto improvements from the channel-wide aspect. Our analysis reveals that the joint VMI and consignment policy will obtain a lower retail price, more replenishment quantity and a shorter reorder cycle than these under a VMI only policy. It even increases channel wide profit by 14.9% compared with it in a VMI only policy.