An analysis of the general benefits of a centralised VMI system based on the EOQ model

Within a vendor-managed inventory (VMI) agreement, the upstream supply chain member (the vendor) takes responsibility for managing the inventory of the downstream member (the customer) within specific levels previously agreed upon without the need of orders from the customer side to be placed. There...

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Bibliographic Details
Published in:International journal of production research 2013-01, Vol.51 (1), p.172-188
Main Authors: Kannan, G., Grigore, M. C., Devika, K., Senthilkumar, A.
Format: Article
Language:English
Subjects:
general benefits based on EOQ modelling
Inventories
Inventory control
Mathematical models
Optimization
Pharmaceutical industry
Pharmaceuticals
Stockpiling
Studies
Supply chains
traditional supply chain
Upstream
Vendor supplier relations
VMI supply chain
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Summary:Within a vendor-managed inventory (VMI) agreement, the upstream supply chain member (the vendor) takes responsibility for managing the inventory of the downstream member (the customer) within specific levels previously agreed upon without the need of orders from the customer side to be placed. Therefore, the vendor can focus on optimising production efficiency and capacity planning, while the customer has to improve forecast accuracy. This paper analyses the benefits a VMI agreement could bring for a one-supplier, multiple-customer case through analysing two cases: a supply chain managed in a traditional manner and VMI when both the vendor and the customers belong to the same organisation. The analysis is based on the economic ordering quantity (EOQ) formula and its related total cost, and the novelty is captured by evaluating one vendor, multiple buyers, and multiple product situations. The modelling is done so as to capture the needs and factors which occur within the pharmaceutical industry and a numerical application will be executed with data from one of the main leaders within the pharmaceutical field.
ISSN:0020-7543
1366-588X
DOI:10.1080/00207543.2011.653838