Research On Vendor Managed Inventory In Supply Chain Based On System Dynamics

Inventory management is always a major component of enterprise management, especially for manufacturing companies; a reasonable inventory management can reduce the cost of enterprise effectively, thus how to make an effective management of inventory under the supply chain environment is an enormous challenge that every manager will face. In order to meet the challenge, an inventory managed strategy named vendor managed inventory (VMI) come out. However, due to the uncertainty, diversity and dynamic nature of customer demand, vendor managed inventory system show a complex dynamic behavior which to some extent increase the difficulty of manager's decision-making. So how to determine the dynamic behavior and its impact factors is a major concern of today's managers and researchers.But a lot of scholars only consider the inventory strategies of the enterprise regardless of the production processes of manufacturing enterprises when they study on the vendor managed inventory strategy. For the above, this paper focus on a two-echelon supply chain which contains a manufacturer and a distributor and how the inventory impact the manufacturer production processes is also taken into consideration, a VMI strategy is implemented between the manufacturer and the distributor, meaning that the manufacturer manages the distributor's inventory. A systemic analysis is done on the vendor managed inventory system dynamics behavior.This paper first systematically discusses the concept of vendor managed inventory and then analysis of its features, support system and operational mechanism, moreover based on the system dynamics theory and modeling methods the boundaries and patterns of behavior of a vendor managed inventory system is determined. Using system dynamics software which named Vensim, a system dynamics model of vendor managed inventory system is established;Second, a simulation of the system dynamic model of vendor managed inventory mode under different kinds of demand including stochastic demand, step demand, ramp demand and sine wave demand is made, and also a comparative analysis between traditional inventory management mode and VMI mode is taken, the results show that the latter has a great advantage, for it can greatly reduce the manufacturer's inventory levels, as well as system inventory levels, weaken "bullwhip effect" of the whole system;Third, an optimization is made under different combinations of parameters, in order to provide a theoretical reference for the actual system decisions.Vendor Managed Inventory is an advanced inventory management strategy, which will be adopted by more and more enterprises in future. If a VMI strategy were going to be implemented, lots of factors must be considered, this paper provides an analytical method and a reference for making decision, in the implementation of vendor managed inventory strategy.