Game theory analysis of a producer-buyer supply chain under Vendor Managed Inventory (Vmi) Agreement
Keywords:
Supply chain integration, Game Theory, Vendor Managed Inventory, VMI
Abstract
During the last decade, several models and strategies of coordination in supply chains have been developed, one of which is known as the Vendor Managed Inventory model (VMI). Despite the coordination efforts between the actors, sometimes it turns out that each one retains its restrictions and interests, which would preclude an integral implementation of the coordination strategy or agreement. A game theory based analysis approach is proposed for a supply chain comprising a producer (with a finite production rate) and a buyer (with known and constant demand), who have a VMI strategy, under two scenarios: Cooperative VMI and Non Cooperative VMI. A negotiation model where the one who gets more benefits can stimulate to the other agent who loses with agreement is proposed as well. A sensitivity analysis of the models has been performed in order to find the benefits to be gained in terms of savings in inventory costs and how these are distributed among the agents. The study results showed that under certain conditions and parameters, the VMI Cooperative model always favored the producer which did not happen with the buyer. However, the buyer may benefit from the VMI Cooperative model in its optimal point or by means of the economic incentive provided by the producer as a set in a bargaining model.
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References
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[41] Yu, Y., Chu, F., and Chen, H. “A Stackelberg game and its improvement in a VMI system with a manufacturing vendor”, European Journal of Operational Research, 192, 929–948, 2009.
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[43] Zavanella, L., and Zanoni, S. “A one-vendor multi-buyer integrated production-inventory model: The ‘ConsignmentStock’ case”, International Journal of Production Economics, 118, 225–232, 2009.
[44] Zhang, T., Liang, L., Yu, Y., and Yu, Y. “An integrated vendor-managed inventory model for a two-echelon system with order cost reduction”, International Journal of Production Economics, 109, 241–253, 2007.
[2] Angulo, A., Nachtmann, H., and Waller, M. A. “Supply chain information sharing in a vendor managed inventory partnership. Journal of Business Logistics”, Journal of Business Logistics, 25 (1), 101-120, 2004.
[3] Arora, V., Chan, F., and Tiwari, M. “An integrated approach for logistic and vendor managed inventory in supply chain”, Expert Systems with Applications, 37, 39–44, 2010.
[4] Bylka, S. “Non-cooperative strategies for production and shipments lot sizing in the vendor–buyer system”, International Journal of Production Economics, 118, 243–252, 2009.
[5] Challener, C. “Taking the VMI step to collaborative commerce”, Chemical Market Reporter, 258 (21), 11- 12, 2000.
[6] Chen, J.-M., Lin, I.-C., and Cheng, H.-L. “Channel coordination under consignment and vendor-managed inventory in a distribution system”, Transportation Research, doi:10.1016/j.tre.2010.05.007, 2010.
[7] Choi, K.-S., Dai, J. G., and Song, J.-S. “On measuring supplier performance under vendor-managed inventory programs in capacitated supply chains”, Manufacturing and Service Operations Management, 6 (1), 53–72, 2004.
[8] Choi, T.-M., Li, D., Yan, H., and Chi, C.-H. “Channel coordination in supply chains with agents having meanvariance objectives. Omega”, 36, 565 – 576, 2008.
[9] Darwish, M. A., and Odah, O. M. “Vendor-managed inventory model for single-vendor multi-retailer supply chains”, European Journal of Operational Research, 204, 473-484, 2010.
[10] Dong, Y., and Xu, K. “A supply chain model of vendor managed inventory”, Transportation Research, Part E 38, 75-95, 2002.
[11] Esmaeili, M., Aryanezhad, M.-B., and Zeephongsekul, P. “A game theory approach in seller–buyer supply chain”, European Journal of Operational Research, 195, 442–448, 2009.
[12] Gümü, M., Jewkes, E. M., and Bookbin, J. H. “Impact of consignment inventory and vendor-managed inventory for a two-party supply chain”, International Journal of Production Economics, 113, 502–517, 2008.
[13] Hemmelmayr, V., Doerner, K. F., Hartl, R. F., and Savelsbergh, M. W. “Vendor managed inventory for environments with stochastic product usage”, European Journal of Operational Research, 202, 686-695, 2010.
[14] Hennet, J.-C., and Arda, Y. “Supply chain coordination: A game-theory approach. Engineering Applications of Artificial Intelligence”, 21, 399–405, 2008.
[15] Holweg, M., Disney, S., Holmström, J., and Smaros, J. “Supply Chain Collaboration: Making Sense of the Strategy Continuum”, European Management Journal, 23 (2), 170–181, 2005.
[16] Kuk, G. “Effectiveness of vendor-managed inventory in the electronics industry: determinants and outcomes”, Information and Management, 41, 645–654, 2004.
[17] Kwak, C., Choi, J. S., Kim, C. O., and Kwon, I.-H. “Situation reactive approach to Vendor Managed Inventory problem”, Expert Systems with Applications, 36, 9039–9045, 2009.
[18] Lee, C. C., and Chu, W. H. “Who should control inventory in a supply chain?”, European Journal of Operational Research, 164, 158–172, 2005.
[19] Lee, H., So, K., and Tang, C. “The value of information sharing in a two-level supply chain”, Management Science, 46 (5), 626-643, 2000.
[20] Leng, M., and Parlar, M. “Lead-time reduction in a twolevel supply chain: Non-cooperative equilibria vs. Coordination with a profit-sharing contract”, International Journal of Production Economics, 118, 521–544, 2009.
[21] Ofuoku, M. “Stochastic vendor managed inventory: impact on non-identical retailers”, PhD. Thesis. New Mexico State University, Las Cruces, New Mexico, 2009.
[22] Perez Navarro, J., Jimeno Pastor, J. L., and Cerdá Tena, E. Teoría de Juegos. Madrid: Pearson Educación S.A., 2004.
[23] Ru, J., and Wang, Y. “Consignment contracting: Who should control inventory in the supply chain?”, European Journal of Operational Research, 201, 760–769, 2010.
[24] Sari, K. “On the benefits of CPFR and VMI: a comparative simulation study”, International Journal of Production Economics, 113 (2), 575-586, 2008.
[25] Sarmah, S. P., Acharya, D., and Goyal, S. K. “Buyer vendor coordination models in supply chain management”, European Journal of Operational Research, 175, 1–15, 2006.
[26] Savasaneril, S., and Erikp, N. (2010). An analysis of manufacturer benefits under vendor-managed systems. IIE Transactions, 42, 455–477.
[27] Song, D.-P., and Dinwoodie, J. “Quantifying the effectiveness of VMI and integrated inventory management in a supply chain with uncertain lead-times and uncertain demands”, Production Planning and Control, 19 (6), 590-600, 2008.
[28] Southard, P. B., and Swenseth, S. R. “Evaluating vendor-managed inventory (VMI) in non-traditional environments using simulation”, International Journal of Production Economics, 116, 275-287, 2008.
[29] Szmerekovsky, J. G., and Zhang, J. “Coordination and adoption of item-level RFID with vendor managed inventory”, International Journal of Production Economics, 114, 388– 398, 2008.
[30] Torres, F., y Ballesteros, F. “Modelo de un sistema coordinado productor-comprador a través de una estrategia basada en VMI”, presented at the 5th Americas International Conference on Production Research. Bogotá: Universidad de los Andes, 2010.
[31] Towill, D., and Disney, S. “The effect of vendor-managed inventory (VMI) dynamics on the bullwhip effect in supply chains”, International Journal of Production Economics, 85 (2), 199-215, 2003.
[32] Tyan, J., and Wee, H.-M. “Vendor managed inventory: a survey of the Taiwanese grocery industry”, Journal of Purchasing and Supply Management, 9, 11–18, 2003.
[33] Vlist, P. v., Kuik, R., and Verheijen, B. “Note on supply chain integration in vendor-managed inventory”, Decision Support Systems, 44, 360–365, 2007.
[34] White, A., and Censlive, M. “Observations on modeling strategies for vendor-managed inventory”, Journal of Manufacturing Technology Management, 17 (4), 496- 512, 2006.
[35] Wong, W., Qi, J., and Leung, S. “Coordinating supply chains with sales rebate contracts and vendor-managed inventory”, International Journal of Production Economics, 120, 151–161, 2009.
[36] Yang, K.-K., Ruben, R. A., and Webster, S. “Managing vendor inventory in a dual level distribution system”, Journal of Business Logistics, 24 (2), 91-108, 2003.
[37] Yang, L., Ng, C., and Cheng, T. “Evaluating the effects of distribution centers on the performance of vendormanaged inventory systems”, European Journal of Operational Research, 201, 112-122, 2010.
[38] Yao, Y., Dong, Y., and Dresner, M. “Managing supply chain backorders under vendor managed inventory: An incentive approach and empirical analysis”, European Journal of Operational Research, 203, 350-359, 2010.
[39] Yao, Y., Evers, P. T., and Dresner, M. E. “Supply chain integration in vendor-managed inventory”, Decision Support Systems, 43, 663– 674, 2007.
[40] Yu, H., Zeng, A. Z., and Zhao, L. “Analyzing the evolutionary stability of the vendor-managed inventory supply chains”, Computers and Industrial Engineering, 56, 274–282, 2009.
[41] Yu, Y., Chu, F., and Chen, H. “A Stackelberg game and its improvement in a VMI system with a manufacturing vendor”, European Journal of Operational Research, 192, 929–948, 2009.
[42] Yu, Y., Huang, G. Q., and Liang, L. “Stackelberg gametheoretic model for optimizing advertising, pricing and inventory policies in vendor managed inventory (VMI) production supply chains”, Computers and Industrial Engineering, 57, 368–382, 2009.
[43] Zavanella, L., and Zanoni, S. “A one-vendor multi-buyer integrated production-inventory model: The ‘ConsignmentStock’ case”, International Journal of Production Economics, 118, 225–232, 2009.
[44] Zhang, T., Liang, L., Yu, Y., and Yu, Y. “An integrated vendor-managed inventory model for a two-echelon system with order cost reduction”, International Journal of Production Economics, 109, 241–253, 2007.
Published
2014-11-26
How to Cite
Villa Marulanda, M., & Torres Delgado, J. (2014). Game theory analysis of a producer-buyer supply chain under Vendor Managed Inventory (Vmi) Agreement. ITECKNE, 9(1), 67-82. https://doi.org/https://doi.org/10.15332/iteckne.v9i1.2748
Issue
Section
Research and Innovation Articles
