An analytical study of the modification ability of distribution centers
This paper considers a two-level vendor managed inventory (VMI) system comprising a distribution center (DC) and a retailer. Both the DCs and the retailers replenishment decisions follow the order-up-to-level policy and aim at maximizing the profit of the overall system. We critically examine the potential of the DCs ability to modify delivery decisions, identify and quantify the cost factors that influence the DCs modification ability, establish a relationship between the DCs location and its modification ability, and show the trade-off between the DCs modification ability and related costs. Our analysis provides a new insight into the role of the DC and reveals the full potential of the VMI system. Our findings and their practical implications, demonstrated with the aid of computational examples, are helpful for enhancing the practice of VMI at both strategic and operational levels.
modification ability distribution center order-up-to-level policy location vendor managed inventory system