A stochastic single-vendor single-buyer model under a consignment agreement

Abstract

In the recent years, companies have begun to strengthen their supply agreements, such as sharing the management of inventories. This type of co-soperation implies that the members of the supply chain share information and arrange a mutual agreement on their performance targets. The increased interest on supply chain topics has attracted researchers' attention to the problem of co-operation between the buyer and vendor, the two actors directly interacting in the supply mechanism. The present research investigates the way how a particular VMI policy, known as Consignment Stock (CS), may lead to a successful strategy for both buyer and vendor. The previous study [1] developed an analytical model of the CS policy, with reference to the centralised decision and deterministic settings. In order to fully explore the potentiality of CS policy, an extension of the model is proposed in this paper. The results indicate that the CS policy could be a strategic and profitable approach to improve supply chain performance in uncertain environments. © 2007 International Federation for Information Processing.