An integrated model for optimizing advertising cooperation in a VMI (vendor managed inventory) supply chain

This paper studies the advertising cooperation in a VMI-type supply chain where one manufacturer (vendor), servers multiple retailers under a VMI contract. The manufacturer produces a single product and distributes to its retailers geographically dispersed in different markets with a common replenishment cycle. The proper advertisement investment leads to an increase of the profit of the whole supply chain, as the advertising promotion would boost the demand of the product. Thus, we propose an integrated model for optimizing the advertising cooperation to maximize the supply chain profit, and determine the advertising policies of the manufacturer and its retailers, the common replenishment cycle and the backorder policy for each retailer. A numerical example is presented to demonstrate the application of the integrated model.