We study a periodic review inventory control problem in a supply chain with
a single retailer and a single supplier under stochastic demand. We propose a VMI
agreement and compare the VMI setting with the traditional case to quantify the
benefits of VMI. In our proposed VMI agreement, the retailer shares the inventory
level information with the supplier, which is not available in traditional system, and
the supplier is responsible to keep the retailer‟s inventory level between the
minimum and maximum levels set by the contract. We analyze the benefits of such
an agreement for each member and also for the supply chain. Furthermore, we aim to
measure the performance of the VMI agreement in coordinating the overall chain by
comparing it with the centralized system.