favorable
supplier’s order cost prior to the introduction of VMI
is large relative to the buyer’s post-VMI order cost.
Similarly, total benefits will also be greater when the
supplier’s order cost before the introduction of VMI is
small relative to the buyer’s pre-VMI order cost. From
this, it can be deduced that changes in the buyer’s
order cost due to the introduction of VMI affect the
total benefits: the greater the reduction in the buyer’s
order cost, the higher the total benefits. It also demonstrates in the numerical examples that greater total
benefits are associated with smaller inventory cost
ratios; that is, the buyer’s carrying charge is large
relative to the supplier’s. Indeed, at some extremes,
the total benefits of VMI may be negative.
-60%
-40%
-20%
0%
20%
40%
60%
0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1
Supplier Buyer
Savings in Inventory Holding Costs
d
Fig. 3. Distribution of VMI benefits between buyer and supplier (when g= 1 and gV= 2).
Y. Yao et al. / Decision Support Systems 43 (2007) 663–674 671