Skip to main content
SpringerLink
Log in

Vendor-managed inventory and the effect of channel power

  • Chapter
  • First Online:
Supply Chain Planning

  • 3079 Accesses

Abstract

AbstractWe analyze decentralized supply chains that follow general continuous review (Q, R) inventory policies subject to vendor-managed inventory agreements where the supplier chooses the order quantity Q, and the retailer chooses the reorder point R. Within the VMI scenario, we explore the effect of divisions of channel power on supply chain and individual agent performance by examining different game theoretic models. Optimal policies and analytical results, including existence and uniqueness proofs for equilibrium solutions under VMI, are derived. Numerical results are provided to compare the effectiveness of VMI and to analyze different channel power relationships under a variety of environmental conditions. We find that VMI can result in considerable supply chain savings over traditional relationships and that the relative division of channel power can significantly effect the performance of VMI. Interestingly, we find that the greatest system benefits from VMI arise in asymmetric channel power relationships, but that individual agents lack the incentive to assume a leadership role.

Originally published in:

OR Spectrum (2009) 31:195–228

DOI 10.1007/s00291-007-0102-7

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 129.00
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD 169.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info
Hardcover Book
USD 169.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  • Amir R, Stepanova A (2006) Second-mover advantage and price leadership in Bertrand duopoly. Games Econ Behav 55:1–20

    Article  Google Scholar 

  • Aviv Y, Federgruen A (1998) The operational benefits of information sharing and vendor managed inventory (VMI) programs. Working paper, Olin School of Business, Washington University, St. Louis, MO

    Google Scholar 

  • Benton W, Maloni M (2004) The influence of power driven buyer/seller relationships on supply chain satisfaction. J Oper Manage (23):1–22

    Article  Google Scholar 

  • Bernstein F, Federgruen A (2003) Pricing and replenishment strategies in a distribution system with competing retailers. Oper Res 51(3):409–426

    Article  Google Scholar 

  • Bernstein F, Federgruen A (2004) Dynamic inventory and pricing models for competing retailers. Naval Res Logis 51(2):258–274

    Article  Google Scholar 

  • Bernstein F, Federgruen A (2005) Decentralized supply chains with competing retailers under demand uncertainty. Manage Sci 51(1):18–29

    Article  Google Scholar 

  • Bichescu B, Fry M (2007) A numerical analysis of supply chain performance under split decision rights. Omega. doi:10.1016/j.omega.2007.04.001

    Article  Google Scholar 

  • Bolen WH (1988) Contemporary retailing, 3rd edn. Prentice Hall, Englewood Cliffs

    Google Scholar 

  • Boyer M, Moreaux M (1987) On stackelberg equilibria with differentiated products: the critical role of the strategy space. J Ind Econ 36(2):217–230

    Article  Google Scholar 

  • Buzzel R, Ortmeyer G (1995) Channel partnerships streamline distribution. Sloan Manage Rev (36):85

    Google Scholar 

  • Cachon GP (2001) Stock wars: inventory competition in a two-echelon supply chain with multiple retailers. Oper Res 49(5):658–674

    Article  Google Scholar 

  • Cachon GP (2003) Supply chain coordination with contracts. In: Graves S, de Kok A (eds) Handbooks in operations research and management science, vol 11: Supply chain management: design, coordination and operation. Elsevier, Amsterdam pp 229–339

    Google Scholar 

  • Cachon GP, Fisher M (1997) Campbell Soup's continuous replenishment program: evaluation and enhanced inventory decision rules. Prod Oper Manage 6(3):266–276

    Article  Google Scholar 

  • Cachon GP, Netessine S (2004) Game theory in supply chain analysis. In: Simichi-Levi D, Wu SD, Shen Z-J (eds) Supply chain analysis in the eBusiness Era. Kluwer, Boston

    Google Scholar 

  • Cachon GP, Zipkin P (1999) Competitive and cooperative inventory policies in a two stage supply chain. Manage Sci 45(7):936–953

    Article  Google Scholar 

  • Casella G, Berger RL (1990) Statistical Inference, 1st edn. Brooks/Cole, Belmont

    Google Scholar 

  • Choi C (1991) Price competition in a channel structure with a common retailer. Market Sci 10(4):271–296

    Article  Google Scholar 

  • Clark TH, Hammond J (1997) Reengineering channel reordering processes to improve total supply chain performance. Prod Oper Manage 6(3):248–265

    Article  Google Scholar 

  • Clark TH, McKenney JL (1994) Campbell Soup Company: a leader in continuous replenishment innovations. Harvard Business School Case # 195124. Harvard Business School, Harvard University, Cambridge

    Google Scholar 

  • Corbett CJ (2001) Stochastic inventory systems in a supply chain with asymmetric information: cycle stocks, safety stocks, and consignment stock. Oper Res 49(4):487–500

    Article  Google Scholar 

  • Corbett CJ, Zhou D, Tang CS (2004) Designing supply contracts: contract type and information asymmetry. Manage Sci 50(4):550–559

    Article  Google Scholar 

  • Desiraju R, Moorthy S (1997) Managing a distribution channel under asymmetric information with performance requirements. Manage Sci 43(12):1628–1644

    Article  Google Scholar 

  • Emerson RM (1962) Power-dependence relations. Ame Soc Rev (27):31–41

    Article  Google Scholar 

  • Federgruen A (1993) Centralized planning models for multi-echelon inventory systems under uncertainty. In: Graves SC, RinnooyKan AHG, Zipkin PH (eds) Handbooks in operations research and management science, vol 4 (Logistics of production and inventory). Elsevier, Amsterdam pp 133–173

    Google Scholar 

  • Fry MJ, Kapuscinski R, Olsen TL (2001) Coordinating production and delivery under a (z, Z)-type Vendor-Managed Inventory contract. Manufact & Serv Oper Manage 3(2):151–173

    Article  Google Scholar 

  • Gal-Or E (1985) First mover and second mover advantages. Int Econ Rev 26:649–653

    Article  Google Scholar 

  • Gavirneni S, Kapuscinski R, Tayur S (1999) Value of information in capacitated supply chains. Manage Sci 45(1):16–24

    Article  Google Scholar 

  • Hadley G, Whitin TM (1963) Analysis of inventory systems. Prentice-Hall, Englewood Cliffs

    Google Scholar 

  • Hammond J (1994) Barilla SpA (A) and (B). Harvard Business School Case # 694046. Harvard Business School, Harvard University, Cambridge

    Google Scholar 

  • Harris F (1915) Operations and Costs. (Factory Management Series). A.W. Shaw, Chicago, pp 48–52

    Google Scholar 

  • Hill R, Omar M (2006) Another look at the single-vendor single-buyer integrated production-inventory problem. Int J Prod Res 44(4):791–800

    Article  Google Scholar 

  • Hopp W, Spearman M, Zhang R (1997) Easily implementable inventory control policies. Oper Res 45(3):327–340

    Article  Google Scholar 

  • Kadiyali V, Chintagunta P, Vilcassim V (2000) Manufacturer-retailer channel interactions and implications for channel power: an empirical investigation of pricing in a local market. Market Sci 19(2):127–148

    Article  Google Scholar 

  • Lee HL, So KC, Tang CS (2000) The value of information sharing in a two-level supply chain. Manage Sci 46(5):626–643

    Article  Google Scholar 

  • Maloni M, Benton W (2000) Power influences in the supply chain. J Bus Logis 21(1):49–73

    Google Scholar 

  • Nagarajan M, Rajagopalan S (2004) Coordination issues in vendor managed inventory systems. Working paper. University of Southern California, Marshall School of Business, Los Angeles

    Google Scholar 

  • Narayanan VG, Raman A (1998) Assignment of stocking decision rights under incomplete contracting. Working paper, Harvard Business School, Harvard University, Cambridge

    Google Scholar 

  • Netessine S, Rudi N (2003) Centralized and competitive inventory models with demand substitution. Oper Res 51(2):329–335

    Article  Google Scholar 

  • Netessine S, Rudi N (2004) Supply chain structures on the internet and the role of marketing-operations interaction. In: Simchi-Levi D, Wu S, Shen Z (eds) Supply chain analysis in the eBusiness Era chap. 19. Kluwer, Amsterdam

    Google Scholar 

  • Papadimitriou CH (2001) Game theory and mathematical economics: a theoretical computer scientists introduction. In: Proceedings of the 42nd IEEE symposium on foundations of computer science (FOCS) pp 4–8, Las Vegas, NV, October 2001. IEEE Computer Society Press, Los Alamitos

    Google Scholar 

  • Petruzzi NC, Dada M (1999) Pricing and the newsvendor problem: a review with extensions. Oper Res 47(2):183–194

    Article  Google Scholar 

  • The Wall Street Journal (2004) In bow to retailers' new clout, Levi Strauss makes alterations. Wall Street J pp A1. http://online.wsj.com/article/SB 108742485606139344.html

  • Valentini G, Zavanella L (2003) The consignment stock of inventories: industrial case and performance analysis. Int J Prod Econ 81-82:215–224

    Article  Google Scholar 

  • Wang Y (2006) Joint pricing-production decisions in supply chains of complementary products with uncertain demand. Oper Res 54(6):11101127

    Google Scholar 

  • Wang Y, Jiang L, Shen Z (2004) Channel performance under consignment contract with revenue sharing. Manage Sci 50(1):34–47

    Article  Google Scholar 

  • Wu X, YK R, Dang C (2005) Coordinating a supply chain with a vendor-managed inventory contract. Working paper. City University of Hong Kong, Hong Kong

    Google Scholar 

  • Zheng Y-S (1992) On properties of stochastic inventory systems. Manage Sci 38(1):87–103

    Article  Google Scholar 

  • Zipkin P (2000) Foundations of inventory management. McGraw-Hill, New York

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Department of Statistics, Operations and Management Science, College of Business Administration, The University of Tennessee, 37996, Knoxville, TN, USA

    Bogdan C. Bichescu

  2. Department of Quantitative Analysis and Operations Management, College of Business, University of Cincinnati, 45221-0130, Cincinnati, OH, USA

    Michael J. Fry

Authors
  1. Bogdan C. Bichescu
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Michael J. Fry
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Bogdan C. Bichescu .

Editor information

Editors and Affiliations

  1. FG Produktion & Supply Chain Management, TU Darmstadt, Hochschulstr. 1, Darmstadt, 64289, Germany

    Herbert Meyr

  2. BWL - Produktionsmanagement, TU Berlin, Wilmersdorfer Str. 148, Berlin, 10585, Germany

    Hans-Otto Günther

Rights and permissions

Reprints and permissions

Copyright information

© 2009 Springer-Verlag Berlin Heidelberg

About this chapter

Cite this chapter

Bichescu, B.C., Fry, M. . (2009). Vendor-managed inventory and the effect of channel power. In: Meyr, H., Günther, HO. (eds) Supply Chain Planning. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-540-93775-3_10

Download citation

Publish with us

Policies and ethics

Search

Navigation