Inventory Cost And Revenue Allocation Analysis Under VMI

Inventory controlling is an important part of supply chain management. In a decentralized supply chain, members in it make their own decision based on unequal information, which leads to the bullwhip effect, increased cost and waste of resources. Vendor Managed Inventory(VMI) transferred a part of inventory cost to manufacturer, which integrated resources in supply chain, and reduced the bullwhip effect. But under VMI, because of this transferred inventory cost, manufacturer wouldn't like to join in VMI. Only in a contract which provides an optimal wholesale price or allocates a part of revenue, is manufacturer willing to take part in VMI.Based on the background above, this paper considered no stock-out cost and existing stock-out cost respectively, modeled manufacturer and his retailer's stock cost before and after VMI. Then, this paper analyzed a Stackelberg game to get the final Nash equilibrium of optimal wholesale price. This paper found that VMI can integrate resources reduce the cost in supply chain. However, the manufacturer's cost would increase in a short time, but if increase wholesale price, he is will to take part in the supply chain of VMI.Finally, this paper considered to use revenue sharing contract to coordinate a supply chain under the same assumption above. In the revenue sharing contract model, a revenue sharing factor was used to allocate revenue in the supply chain. We found that the supply chain under VMI can be coordinated when revenue share factor was in a special area. However, based on their bargaining power, manufacturer and retailer also need to negotiate to set down the revenue share factor.