Inventory and Routing Policies in Vendor Managed Inventory System

In this paper, an inventory control policy and routing strategy are jointly considered by developing dynamic programming model in vendor managed inventory system. The inventory policy is proved to be (s, S) pattern and two routing options are examined by simulation. Our numerical study shows that the best routing policy is to choose the farthest one from the supplier, consecutively. Compared to maximum capacity replenishment policy, not only the average revenue can be increased up to 10%, but also the average transportation cost is saved over 5%.