Vendor Managed Inventory for Multi-Vendor Single-Manufacturer Supply Chain: A Case Study of Instant Noodle Industry

Abstract

This paper develops a vendor-managed inventory (VMI) model for a multiple-vendor, single-manufacturer supply chain, in which the first stage members can be traders and/or producers and the second stage member is a manufacturer. The model utilizes a realistic transportation cost which is dependent on the sizes (small- or medium-sized) of trucks. It can determine suitable sizes and numbers of trucks that minimize the transportation cost. A genetic algorithm (GA) technique, implemented in MATLAB software, is used to determine the best solution to the problem. A case study in the instant noodle industry is conducted to demonstrate the usefulness of the proposed model. Based on the experimental results, the VMI model has reasonable behaviors using sensitivity analysis. To reduce the inventory level of raw materials, the penalty cost may be set at a relatively high level or the upper inventory limits may be set at relatively low levels, without significantly affecting the average total cost per period of the entire supply chain. When the vendors are allowed to make decision independently, the solution is still the same as the solution from the proposed VMI model, which means that the manufacture does not take advantage of the vendors.