New Directions in Supply Chain Management

Chapter 15

Vendor-Managed Inventory in Production Constrained Settings

Michael Fry and Roman Kapuscinski

University of Michigan

Tava Lennon Olsen

Washington University

INTRODUCTION

UNDER VENDOR-MANAGED INVENTORY (VMI), a supplier assumes control of the stock management for one or more retailers. The supplier becomes responsible for deciding the quantity and timing of shipments to the retailers. This typically requires some sort of information exchange between the retailers and the supplier, which can be accomplished through such means as Electronic Data Interchange (EDI), the Internet, or even periodic fax reports (Aviv and Federgruen 1998).

Such a program involves a fair amount of trust on the part of the participating parties. Several authors ...