A Stackelberg game model for optimizing price, service level and inventory decisions in Vendor Managed Inventory system

Document Type : IIIEC 2021

Authors

Department of Industrial Engineering, Yazd University, Yazd, Iran

Abstract

Vendor management inventory (VMI), as one of the inventory management methods, reduces the cost of inventory in the chain, quick response to customers, increased service level, customer satisfaction, and improve collaboration between the members of the supply chain. In this study, a bi-level supply chain model with one manufacturer and one retailer under a vendor management inventory policy is investigated. The manufacturer produces a single product by the production capacity constraint at wholesale price and delivers the product to the retailer who then sells the product in the dispread market at retail price. The demand rate for the product in the retailer market is assumed to be a decreasing function of the price and an increasing function of the service level. The manufacturer determines its wholesale price, product’s replenishment cycle time, and backorder quantity to maximize its profit. Retailer determines the optimal retail price and service level to maximize its profit. This problem formulated as a Stackelberg game model with consideration manufacture as a leader and retailer as a follower. To search the Stackelberg game equilibrium, a solution algorithm has been proposed. A numerical study has been conducted to demonstrate how the algorithm works and to understand the influences of decision variables and parameters. Also, in order to validate the proposed model, sensitivity analysis has been performed on some parameters.

Keywords

Main Subjects


Bahrami z., Pasandideh s.h.r. (2019). Joint optimization of the retailer's price, replenishment cycle and production rate in a vmi system with discounting using game theory, Sharif Journal of Industrial Engineering & Management,34 (1), 79-88.  (In Persian).
Batarfi, R., Jaber, M.Y., Glock, C.H. (2019). Pricing and inventory decisions in a dual-channel supply chain with learning and forgetting, Computers & Industrial Engineering, 136, 397-420.
Haji, A., Afzalabadi, M., & Haji, R. (2018). Pricing and inventory decisions in a vendor managed inventory system with revenue sharing contract. Uncertain Supply Chain Management, 6(3), 299-320.‏
Hemmati, M., Fatemi Ghomi, S. M. T., & Sajadieh, M. S. (2017). Vendor managed inventory with consignment stock for supply chain with stock-and price-dependent demand. International Journal of Production Research, 55(18), 5225-5242.‏
Kaipia, R., Holmstrom, J., and Tanskanen, K., (2002). VMI: What are you losing if you let your customer place orders, Production Planning and Control, 13(1), 17-25.
Lee, H.L., So, K.C., and Tang, C.S. (2000). The value of information sharing in a two level supply chain, Management Science, 46 (5), 626-643. 
Niknamfar, A. H., & Pasandideh, S. H. R. (2014). A bi-objective optimization for vendor managed inventory model. Journal of Optimization in Industrial Engineering, 7(15), 37-45.‏
Ortmeyer, R.D. and Buzzell, G. (1995). Channel partnerships streamline distribution, Sloan Management Review, 36, 85.
Rasay, H., Mehrjerdi, Y. Z., & Nezhad, M. S. F. (2015). Modeling and numerical analysis of revenue sharing contract based on the Stackelberg game theory. International Journal of Supply and Operations Management, 1(4), 439.‏
Rasay, H., Zare Mehrjerdi, Y., and Fallah Nezhad, M. S. (2013). Vendor management inventory system in the case of one vendor and multi retailer, Int. J. of Industrial Engineering & Production Management, 24 (3), 269-282. (In Persian).
Taleizadeh, A. A., Noori-daryan, M., & Cárdenas-Barrón, L. E. (2015). Joint optimization of price, replenishment frequency, replenishment cycle and production rate in vendor managed inventory system with deteriorating items. International Journal of Production Economics, 159, 285-295.‏
Yu, Y., Hong, Z., Zhang, L.L., Liang, L., and Chu, Ch. (2013). Optimal selection of retailers for a    manufacturing vendor in a vendor managed inventory system, European Journal of Operational Research, 225, 273–284.
Yu, Y., Chu, F., and Chen, H., (2009). A Stackelberg game and its improvement in a VMI system with a manufacturing vendor, European Journal of Operational Research, 192 (3), 929–948.
Zare Mehrjerdi, Y., Fallah Nezhad, M. S. and Rasai, H. (2014). Modeling and the sensitivity analyze of Vendor management inventory system based on Stackelberg game theory and assuming that the manufacturer as a leader, Sharif Journal of Industrial Engineering & Management, 1 (2), 93-103. (In Persian).