Comparative Analysis of a VMI System in a Two-Echelon SC Versus Traditional Systems with Flexible Production Rates

This paper presents a comparative analysis between a two-echelon supply chains with variable production rates in traditional system and a constant production rate in vendor-managed inventory system. The first echelon comprises a vendor (supplier), while the second echelon consists of a single buyer. The vendor-managed inventory approach allows the supplier to initiate purchase requisitions relying on demand data given by the client. Our study utilizes the vendor-managed inventory model of Razmi et al. (2010) and the findings show that initially, the total cost for vendor-managed inventory system is lower than the total cost for traditional system when demand decreases, However, as demand increases, total cost for traditional system becomes lower than total cost for vendor-managed inventory system. This reflects the cost dynamics with demand changes. Additionally, sensitivity analysis indicates that as parameters increase, both order quantity, production rate, reordering point, and total costs increase, with vendor-managed inventory consistently outperforming traditional in cost efficiency, leading to savings. Overall, the traditional system performs better at high demand, while vendor-managed inventory is more effective at lower demand. However, sensitivity analysis shows that vendor-managed inventory offers greater flexibility and efficiency in adapting to changing conditions.