Simulation Of Vendor-Managed-Inventory (VMI) Benefit With Demand Variability

Effective inventory management is of great importance for enterprises to gain long-term competitive advantage with supply chain as the dominant supply mechanism. Inventory management model is one significant part of inventory management. With the aggravation of competition, more and more attention is paid to the study on the method of the inventory management model. Vendor Management Inventory (VMI) is a supply-chain initiative where the upriver enterprise is authorized to manage inventories of agreed-upon stock-keeping units at the downriver enterprises and it will influence the inventory management methods of the enterprises on the supply chain. There are many researches about the VMI model around the word today, and the universal conclusion is that using VMI model will reduce the cost of purchase and inventory on the supply chain in the long run. But after the study of the documents, I found that most of the researches of VMI model were based on some assumption which were very easy and were not correspond with the real conditions.This thesis widen the assumptions of the former researches about the VMI model, take the assumptions of demand variability, out-of-stock condition and the transportation cost into account and make the assumptions similar to the real condition. Using computer to simulate the entire process and observing whether VMI model can reduce the cost of purchasing and inventory under any condition. This thesis will find the factors which affect the total cost of the supply chain before and after performing the VMI model and find out the way and the degree the factors affect the cost.