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Economic Lot Size Formula Under VMI Program with Poisson Demand

Moarefdoost, M. M ; Sharif University of Technology

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  1. Type of Document: Article
  2. DOI: 10.1007/s13369-014-1330-1
  3. Abstract:
  4. Nowadays, inventory management plays a crucial role in manufacturing supply chains. Vendor-managed inventory (VMI) program is a collaborative initiative that shows considerable performances in managing inventories through the supply system. In this study, we discuss the VMI initiative in a serial manufacturing supply chain when there is an uncertainty in demand and provide an approximate closed-form formula for the economic lot size. In this paper, we consider a two-echelon supply chain system consisting of a manufacturer and a retailer. Under vendor-managed inventory program with centralized decision making, the manufacturer is authorized to manage inventories of all agreed upon stock keeping units at the retailer’s location. We develop a renewal reward model for the case of Poisson demand and drive the mathematical formula of the long-run average total inventory cost of supply system under VMI program, and then, we develop a closed-form approximate for the optimal solution. Finally, a numerical experiment is run and measured to evaluate the performance of our approximation
  5. Keywords:
  6. Centralized demand information ; Renewal reward theorem ; The economic lot size problem ; Two-echelon supply chain ; Vendor-managed inventory
  7. Source: Arabian Journal for Science and Engineering ; Vol. 39, issue. 10 , October , 2014 , p. 7459-7465 ; 13198025
  8. URL: http://link.springer.com/article/10.1007%2Fs13369-014-1330-1