A two-level supply chain with consignment stock agreement and stock-dependent demand

This paper presents a vendor-managed inventory (VMI) with consignment stock (CS) policy applied to the integrated vendor-buyer system, where the demand at the buyer side is stock dependent. Under the VMI with CS, the vendor manufactures a product and delivers it in batches of equal sizes to the buyer: although the goods are in the warehouse of the buyer, they remain to be the property of the vendor until the buyer registers a withdrawal. The products delivered are presented to the end customers in a display area and the demand is assumed to be positively dependent on the number of items displayed. Moreover, the model proposed considers that the product display area is replenished once its inventory level hits a given minimum. The paper investigates and compares different policies that may be adopted to exploit the advantages offered by the consignment stock agreement when stock dependent demand at the buyer side is considered.