A one-vendor multi-buyer integrated production-inventory model: The "Consignment stock" case

In recent years, companies have strengthened their supply agreements, and even the management of their inventories. To this aim, vendor-managed inventory (VMI) represents an interesting approach to stock monitoring and control, and it has been progressively considered and introduced in several companies. The research proposed investigates the way how a particular VMI policy, known as Consignment Stock (CS), may represent a successful strategy for both the buyer and the supplier. The most radical application of CS may lead to the suppression of the vendor inventory, as this actor uses the buyer’s warehouse to stock its finished products. As a counterpart, the vendor will guarantee that the quantity stored in the buyer’s warehouse will be kept between a maximum level and a minimum one, also supporting the additional costs eventually induced by stock-out conditions. The buyer will pick up from its store the quantity of material needed to meet its production plans and the material itself will be paid to the buyer according to the agreement signed. In previous studies, Braglia and Zavanella [2003. Modelling an industrial strategy for inventory management in supply chains: The ‘Consignment Stock’ case. International Journal of Production Research 41, 3793–3808] developed an analytical model of the CS policy, referring to a single-vendor and single-buyer situation. The same authors presented a comparison with the optimal solution available in the literature (in particular, with reference to Hill’s model [1997. The single-vendor single-buyer integrated production-inventory model with a generalised policy. European Journal of Operational Research 97, 493–499]). The analytical results obtained allow the identification of the benefits and profitability that the CS approach determines in environments affected by uncertain demand. In order to understand the potential benefits of the CS policy, an analytical model is offered with reference to the interesting industrial case of a single-vendor and multiple- buyer productive situation, thus obtaining the optimal replenishment decisions for both the vendor and buyers in such a situation. The results show how the CS policy works better than the uncoordinated optimisation.