One vendor and multiple retailers system in vendor managed inventory problem with stochastic demand

Abstract

In many supply networks, the retailers are reluctant to share information about demand and inventory level to the vendor. This might lead to many difficulties for the vendor in establishing his own order/production plan. Vendor managed inventory (VMI) policy can help to solve that problem. By applying VMI, information sharing is not really a problem for the vendor anymore and this policy have been proven to help reduce total inventory cost as well as improve customer service level in the supply network. In this research, a VMI model for the system with one vendor and multiple retailers will be developed. The main target of the model is to determine the retailer's lot size, the vendor's lot size, the retailer cycle time, and the number of replenishments in a vendor cycle so as to minimise the total system cost. For solution purpose, simulation-optimisation technique using genetic algorithm is employed to help find optimal solutions for the decision variables. Numerical experiments are conducted to show the applicability of the proposed model. Sensitivity analysis is also conducted to examine the effects of some input parameters on the optimal solution.