A negotiation model for optimal re-supply under VMI systems with defective components and third-party logistics conditions

With the complexity and globalization of the supply chain, outsourcing methods, such as vendor-managed inventory (VMI) under JIT terms, have become widely accepted. For retailers, Third Party Procurement (TPL) is considered as an option to maintain inventory, reduce delivery time and related costs to improve the level of service and profitability. However, due to the risk and possibility of damage to the products during shipment by TPL and even sending the goods from the seller to the TPL warehouse, the final products may have many defects. TPL may or may not deliver the product to the customer due to various circumstances. In this paper, a trading model based on real defective rate, delivery rate, and non-delivery rate is presented. It then shows how to use the model with a numerical example. Finally, the effects of non-delivery rates are explained by sensitivity analysis.

Keywords:

Vendor Managed Inventory , Third-Party Logistics , Supply Chain , Negotiation Model