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Retailer vs. vendor managed inventory with considering stochastic learning effect

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  • Qian Wei
  • Jianxiong Zhang
  • Guowei Zhu
  • Rui Dai
  • Shichen Zhang

Abstract

Extending the research on the impact of learning effect on inventory management is of particular importance, this paper studies two different inventory management models with considering stochastic learning effect, one is retailer-managed inventory (RMI) scenario, and another is vendor-managed inventory (VMI) scenario. We find that inventory exists in equilibrium provided that the holding cost is under a respective threshold both in the RMI and VMI scenarios, also, the threshold in the RMI scenario is significantly larger than that in the VMI scenario. Moreover, the RMI scenario is Pareto dominant over the VMI scenario except for a very large holding cost, and the advantage in enhancing profit is highlighted in the RMI scenario as the variability of the learning rate increases. Furthermore, the traditional double marginalization effect is weakened by a large variability in the RMI scenario while intensified in the VMI scenario. The results obtained in this paper can provide guidance for the inventory management with considering stochastic learning effect.

Suggested Citation

  • Qian Wei & Jianxiong Zhang & Guowei Zhu & Rui Dai & Shichen Zhang, 2020. "Retailer vs. vendor managed inventory with considering stochastic learning effect," Journal of the Operational Research Society, Taylor & Francis Journals, vol. 71(4), pages 628-646, April.
    • Handle: RePEc:taf:tjorxx:v:71:y:2020:i:4:p:628-646
    DOI: 10.1080/01605682.2019.1581407
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