An integrated single-vendor multi-buyer production inventory model with transshipments between buyers

Abstract

Vendor managed inventory (VMI) is an approach used by several companies to monitor and control stocks of their products. In this paper, we investigate how VMI with a Consignment Stock (CS) policy may exemplify a successful strategy for both buyers and suppliers. CS allows a vendor to stock some or its entire inventory using its buyers’ warehouses. This paper considers the problem of a single vendor with multiple buyers collaborating under VMI with a consignment stock policy. Collaboration between buyers is made possible by allowing transshipments from one buyer to another. Those transshipments pass through multiple redistribution hubs whose locations are determined by considering the inventory levels of buyers and shipment storage capacities between them. This paper shows that transshipments between buyers can be a tool for decreasing the total cost faced by both buyers and their suppliers. Numerical results are also presented to illustrate it and discuss its importance. The cost function is shown to be jointly convex in the shipment sizes between the buyers and them and the vendor under certain conditions, where a genetic algorithm is developed to find the number of shipments between the vendor and buyers.