Cachon (2001) studies VMI in a single supplier and multi-retailer setting. Several
different strategies are analyzed with the aim of coordinating the channel. In each case, he
employs game theory to find the equilibrium for each party of the supply chain. With a VMI
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agreement, the supplier can set all reorder points. Cachon remarks that VMI alone does not
guarantee an optimal supply-chain solution; both the vendor and retailers must also agree to
make fixed transfer payments to participate in the VMI contract, and then be willing to share
the benefits. He employs a numerical study to show that no improvement under VMI can be
achieved if fixed payments are not allowed.