Supply chain model in vendor managed inventory

This paper develops an analytical model that explores how important supply chain parameters affect the cost savings to be realized from collaborative initiatives such as vendor-managed inventory (VMI). Results from the model show that the optimal replenishment frequency with VMI is greater than that without VMI, but the optimal shortage quantity and the optimal order quantity for buyer with VMI is smaller than those for buyer without VMI. Results also show that under a certain condition, the total inventory cost with VMI is lower than that without VMI and these benefits are disproportionally distributed between buyers and suppliers.