A Two-Echelon Supply Chain Inventory Coordination Model under VMI

In a two-echelon supply chain with one supplier and one retailer, two inventory management modes, retailer managed inventory (RMI) and supplier (or vendor) managed inventory (VMI), are introduced. The paper mainly discusses the characteristics of VMI, and two contracts are introduced to coordinate the supply chain under VMI. First a subsidy contract is put forward to coordinate the supply chain, under which the retailer pays the supplier a subsidy for the products unsold. And we find that the retailer can coordinate the supply chain and arbitrarily divide total profit if wholesale price is endogenous under a subsidy contract. A revenue share contract is also introduced to improve the performance of the supply chain. At last, a numerical example is put forward to illustrate all our findings.