clusions and implications
5.1. Conclusions
It has been well documented that inventory reductions and cost savings can be reached by implementing collaborative initiatives such as vendor managed
inventory, continuous replenishment, and just-in-time
purchasing that allow for information sharing and
integration among firms in the supply chain. This
paper contributes to the literature by developing an
analytical model that helps to provide a better understanding of how important supply chain parameters,
namely ordering costs and carrying charges, affect the
inventory cost savings to be realized from VMI and
the distribution of these savings between buyers and
suppliers.
Results from the analytical model and numerical
examples show that benefits may be generated from
VMI as long as the ratio of the order costs of the
supplier to the buyer and the ratio of the carrying
charges of the supplier to the buyer are bfavorableQ.
In particular, total benefits will be greater when the
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