Abstract:Both the buyer and supplier must to evaluates howvendor managed inventory (VMI)affects their profit in a supply chain. Specifically it always leads to ahigher buyer’s profit, but supplier’s profit varies. We formulate appropriatemathematical models for buyer and supplier chain structure, examine the effectsof a Vendor Management Inventory strategy on the various cost components ofboth parties, analyze the role of Vendor Management Inventory in a supply chainimitative and the effects of an integrative Vendor Management Inventory programon total relevant cost and profit will be investigated.
Key Words: Supply chain management, Inventory management, VMI
VendorManagement Inventory (VMI) is an important thing in the supply chain, it hasbeen widely used in various industries, and brings considerable profit for manyenterprises. In a supply chain, on the one hand it can be length or short, onthe other hand each enterprise can be in the different supply chain. In orderto study the internal relationship between the buyer and supply of a VendorManagement Inventory system conveniently, we will simplify the relationshipamong the enterprises in this model. we only to analyses one segment in thewhole supply chain：We investigate vendor managed inventoryissue using a model based on supply chain relationship with a focus oninventory systems, purchase prices and purchase quantities[1]. The modelonly contains two enterprises along the supply chain: a buyer and a supplier,the supply is an original equipment manufacturer; the buyer company purchasesits major component from the supplier, so the relation between buyer and supplyis corresponding one to one. From this assumption, we can know that the finalproduct sales quantity of the buyer is the same as the supplier purchasequantity or directly proportional to it. In this VMI model, the buyer companyis the “leader” between the relationships of two companies; the supply has nochoice but accepts the price. The quantity the supplier is willing to provideis determined by the supplier for a given purchase price by the buyer company[2].
2. The vendor managed inventory modelstructure
Assumptionsa company meet these six postulates:
(1) Thecompany can get its needs (goods) in time;
(2) Goodscan be translated here constantly;
(3) Thecompany can not be run out of stock;
(4) Theneed of the buyer company is stabled;
(5) Theunit cost of inventory is a constant;
(6) Ignorethe cash discount issue.
Under allthese assumptions, the buyer company can get its minimum cost about theinventory by the Economic OrderQuantity[3](EOQ).