Multiple-vendor, multiple-retailer based vendor-managed inventory

Xianpei Hong, Wang Chunyuan, Lei Xu, Ali Diabat

Research output: Contribution to journalArticlepeer-review


Vendor-managed inventory is a coordinated system where a vendor decides about the retailer’s replenishment quantity and time. This work studies a two-echelon distribution work composed of multiple vendors and retailers in traditional and vendor-managed inventory systems where unsatisfied demands are lost sales. We also consider that the retailers’ demand is stochastic following a uniform distribution. The mathematical models are developed and applied in vendor-managed inventory and traditional systems. Under the traditional supply chain, the vendor incurs the cost of holding and production setup, while a retailer incurs expenses for inventory holding, ordering, transportation and lost sales. In a vendor-managed inventory system, as the vendor is responsible for his retailers, the retailer’s costs are transferred to the vendor. We aim to identify benefits of vendor-managed inventory. The total cost per unit time is used as a comparable measure between vendor-managed inventory and traditional systems. Numerical examples and a sensitivity analysis of key parameters include the vendor’s setup cost and holding cost; the retailer’s transportation and ordering costs are presented in both vendor-managed inventory and traditional systems. The results illustrate that vendor-managed inventory total system inventory cost is lower than a traditional system where shortage is allowed.

Original languageEnglish (US)
Pages (from-to)277-297
Number of pages21
JournalAnnals of Operations Research
Issue number1-2
StatePublished - Mar 1 2016


  • Backorder
  • Inventory
  • Lost sales
  • Shortage
  • Stochastic demand
  • Total inventory cost per unit time
  • Traditional system
  • Two-echelon
  • Vendor-managed inventory

ASJC Scopus subject areas

  • General Decision Sciences
  • Management Science and Operations Research


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