Profit Distribution Of Upstream Segment For VMI Supply Chain Under Stochastic Demands

Vendor Managed Inventory is a new mode of operation. This mode can reduce inventory costs, reduce the bullwhip effect and increase the gains of the whole supply chain. But because the suppliers bear the inventory costs which conflict to their own interest. The key of the implementation of VMI mode is to establish a suitable benefit distribution mechanism bring win-win for the members of the supply chain. At the same time because of the supply chain upstream and downstream section exist difference, makes the difficulty of coordination among supply chain members also will increase.Firstly, this paper reviews for the VMI model and summarizes the VMI model’s economic effects and the mechanism of its interest distribution. And secondly, it discusses the related theory of VMI, and then, we point out that there are two typical application levels: VMI model in the upstream of supply chain and VMI model in the downstream of supply chain. With stochastic demands considered, compare the expected profit of the supply chain of upriver lay which contains one manufacturer’s and multiple suppliers’ under VMI model to the traditional model. We proposed revenue sharing contract based on Nash negotiation which the starting point is the expected profit under the model of markdown money mechanism based on Stackelberg game. And we find that although the overall supply chain profit reaches maximum, but the method only consider the negotiation skills, some members with negotiation skills will get more benefits. We introduced three factors involved the amount of investment, risk and collaboration which will affect the profit distribution and calculated the stable weight of the factors with ANP. At last, we adjusted the revenue sharing contract with the three factors and introduced the domestic automobile manufacturing industry background. An example was designed and it showed that the method cannot only achieve the optimal revenue of the whole supply chain but also consider the amount of investment, risk and collaboration and other factors.In summary, the purpose of this paper is to build the model of profit distribution according to the characteristics of the upstream of the supply chain. The ANP method was proposed to improve the revenue-sharing contract based on the Nash bargaining, scientific and reasonable to solve problems in the upstream of supply chain section of profit distribution. The interest distribution mechanisms established in this paper are aiming to solve the theoretical and practical problem.