An investigation of vendor-managed inventory application in supply chain: the EOQ model with shortage

Recent researches have shown the importance of improving the supply chain competitiveness by means of strategic alliances. This study considers the retailer-supplier partnership through a vendor-managed inventory (VMI) system and develops an analytical model to explore the effect of important supply chain parameters on the cost savings realized from collaborative initiatives. This model is developed for a two-level supply chain consisting of a single supplier and a single retailer and examines the inventory management practices before and after implementation of VMI. The results of analytical examination show that VMI implementation in economic order quantity model when shortage is backlogged sometimes has the ability to reduce total costs of supply chains. Three numerical examples are also given to support this claim.