Inventory Cost Evaluation Under VMI Program with Lot Splitting

This paper aims to evaluate inventory cost of a Two-echelon serial supply chain system under vendor managed inventory program with stochastic demand, and examine the effect of environmental factors on the cost of overall system. For this purpose, we consider a two-echelon serial supply chain with a manufacturer and a retailer. Under Vendor managed inventory program, the decision on inventory levels are made by manufacturer centrally. In this paper, we assume that the manufacturer monitors inventory levels at the retailer location and replenishes retailerʹs stock under (r, n, q) policy; moreover, the manufacturer follows make-to-order strategy in order to respond retailerʹs orders. In the other word, when the inventory position at the retailer reaches reorder point, r, the manufacturer initiates production of Q=nq units with finite production rate, p. The manufacturer replenishes the retailerʹs stock with replenishment frequency n, and the complete batch of q units to the retailer during the production time. 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 system under VMI. Then, by using Monte Carlo simulation, we examine the effect of environmental factors on the cost of overall system under VMI.