Impact of Replenishment Schedules When a Vendor Manages Inventory at Multiple Retailers with Storage Limits

We study a supply chain in which a single vendor manages multiple retailers’ inventory levels under a vendor managed inventory (VMI) contract. The contract specifies stock limits at the retailers’ facilities. We formulate the problem as a nonlinear mixed integer model that minimizes the total cost in the entire supply chain. As the model is difficult to solve, we provide an approximation method to find a solution, and construct sets of extensive numerical examples for sensitivity analysis. We generate a total of 5400 example problems and use them to assess the impacts of various model parameters on supply chain savings under VMI. Results suggest that the vendor and retailers should negotiate for VMI contracts that do not dictate tight upper stock limits at the retailers, although the retailers might want such restrictions to safeguard themselves.