Profit Model of Vendor Managed Inventory and Its Optimized Policy

The inventory policy in the supply chain is studied. For a kind of salable goods, supply chain model of vendor managed inventory (VMI) is established, on the basis of definite demand and a ready source of initial stock, but in short supply now. The further analysis of the model reveals that although VMI can reduce the total inventory-related cost of the whole supply chain with the short-term incentive, it will increase vendors stock-related cost. Therefore, at the starting stage of implementing VMI, the goods which vendors and vendees inventory systems are seriously unmatched should be considered first. As a result,a theoretical foundation is provided for both the vendor and vendee to merge their inventories together.