Improving Supplier’s Performance Using Common Replenishment Epochs in a Vendor-Managed Inventory System

This paper studies a single-product supply chain, in which the supplier needs to manage its own inventory to fulfill requests from a set of heterogonous retailers. The retailers’ requests are determined by the supplier in a fashion of vendor-managed inventory (VMI). Under a VMI arrangement, the supplier agrees to pay all the order setup costs and a portion of unit holding costs for the retailers. The objective of the system is to minimize the total relevant cost of the supplier. This paper compares the supplier’s performance under the VMI strategy and an uncooperative supply chain in which the retailers decide replenishment requests based on their order setup and holding costs. To further improve the supplier’s performance, a VMI/CRE strategy, which applies the strategy of common replenishment epochs (CRE) under the VMI system, is utilized to save the order processing costs of the supplier. However, the supplier is required to provide a price discount to compensate retailers’ loss for fitting ordering schedules with CRE scheme. Computational experiments are conducted and the performances of the VMI and VMI/CRE strategies are quite satisfied.