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A Stackelberg game and its improvement in a VMI system with a manufacturing vendor


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  • Yu, Yugang
  • Chu, Feng
  • Chen, Haoxun
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    Vendor managed inventory (VMI) is an inventory management strategy to let a vendor manage his retailers' inventories, which makes the vendor have the opportunity to obtain some inventory and market-related information of his retailers. This paper discusses how the vendor can take advantage of this information for increasing his own profit by using a Stackelberg game in a VMI system. The vendor here is a manufacturer who procures raw materials to produce a finished product and supplies it at the same wholesale price to multiple retailers. The retailers then sell the product in independent markets at retail prices. Solution procedures are developed to find the Stackelberg game equilibrium that each enterprise is not willing to deviate from for maximizing his own profit. The equilibrium makes the manufacturer benefited, and the retailers' profits maximized. The equilibrium can then be improved for further benefiting the manufacturer and his retailers if the retailers are willing to cooperate with the manufacturer by using a cooperative contract. Finally, a numerical example and the corresponding sensitivity analysis are given to illustrate that: (1) the manufacturer can benefit from his leadership, and monopolize the added profit of the VMI system in some cases; (2) The manufacturer can further improve his own profit, and then the retailers' profits by the cooperative contract, as compared to the Stackelberg equilibrium; (3) market and raw material related parameters have significant influence on every enterprise's net profit.

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    Bibliographic Info

    Article provided by Elsevier in its journal European Journal of Operational Research.

    Volume (Year): 192 (2009)
    Issue (Month): 3 (February)
    Pages: 929-948

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    Handle: RePEc:eee:ejores:v:192:y:2009:i:3:p:929-948

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    Keywords: Supply chain inventory Stackelberg game Lot-sizing Pricing Raw materials;


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    Cited by:
    1. Egri, Péter & Váncza, József, 2013. "A distributed coordination mechanism for supply networks with asymmetric information," European Journal of Operational Research, Elsevier, vol. 226(3), pages 452-460.
    2. Almehdawe, Eman & Mantin, Benny, 2010. "Vendor managed inventory with a capacitated manufacturer and multiple retailers: Retailer versus manufacturer leadership," International Journal of Production Economics, Elsevier, vol. 128(1), pages 292-302, November.
    3. Hua, Zhongsheng & Zhang, Xuemei & Xu, Xiaoyan, 2011. "Product design strategies in a manufacturer-retailer distribution channel," Omega, Elsevier, vol. 39(1), pages 23-32, January.
    4. Qu, T. & Huang, George Q. & Zhang, Yingfeng & Dai, Q.Y., 2010. "A generic analytical target cascading optimization system for decentralized supply chain configuration over supply chain grid," International Journal of Production Economics, Elsevier, vol. 127(2), pages 262-277, October.
    5. Yu, Yugang & Wang, Zheng & Liang, Liang, 2012. "A vendor managed inventory supply chain with deteriorating raw materials and products," International Journal of Production Economics, Elsevier, vol. 136(2), pages 266-274.
    6. Leng, Mingming & Parlar, Mahmut, 2009. "Lead-time reduction in a two-level supply chain: Non-cooperative equilibria vs. coordination with a profit-sharing contract," International Journal of Production Economics, Elsevier, vol. 118(2), pages 521-544, April.
    7. Pibernik, Richard & Zhang, Yingying & Kerschbaum, Florian & Schröpfer, Axel, 2011. "Secure collaborative supply chain planning and inverse optimization - The JELS model," European Journal of Operational Research, Elsevier, vol. 208(1), pages 75-85, January.
    8. Stanislaw Bylka, 2010. "A Stackelberg game in a production-distribution system with multiple buyers," Operations Research and Decisions, Wroclaw University of Technology, Institute of Organization and Management, vol. 2, pages 5-24.
    9. Yu, Yugang & Hong, Zhaofu & Zhang, Linda L. & Liang, Liang & Chu, Chengbin, 2013. "Optimal selection of retailers for a manufacturing vendor in a vendor managed inventory system," European Journal of Operational Research, Elsevier, vol. 225(2), pages 273-284.
    10. Cai, Gangshu (George) & Chiang, Wen-Chyuan & Chen, Xiangfeng, 2011. "Game theoretic pricing and ordering decisions with partial lost sales in two-stage supply chains," International Journal of Production Economics, Elsevier, vol. 130(2), pages 175-185, April.


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