Optimal Inventory Level Control and Replenishment Plan for Retailers
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Optimal Inventory Level Control and Replenishment Plan for Retailers Chih-Kang Lin 1 & Shangyao Yan 2 & Fei-Yen Hsiao 2 # Springer Science+Business Media, LLC, part of Springer Nature 2020
Abstract In vendor managed inventory (VMI) operations, it is necessary for both the suppliers and the customers to reach an agreement on the maximal and minimal inventory level. In practice, in VMI, inventory levels are decided manually by planning personnel, based on their experience and past operating records. From a system optimization point of view, the determination of the upper and lower inventory levels in storage areas is complicated, necessitating analysis of many factors. Consequently, it may not be possible to obtain the best planning results, to determine and maintain the optimum levels of inventory. In this study, we utilize network flow techniques to build a replenishment model to deal with the upper-and-lower inventory level control problem, with the objective of minimizing the total cost in short-term operations, subject to inventory level control and other operating constraints. The model is formulated as an integer network flow problem with side constraints and is characterized as NP-hard in terms of optimization. To efficiently and effectively solve the large-scale problems that occur in the real world, a solution algorithm is also developed. Finally, numerical tests are conducted using real data from a major retail company in northern Taiwan. The results demonstrate the usefulness of the proposed model and solution algorithm for replenishment planning in actual practice. Keywords Replenishment planning . Vendor managed inventory . Upper-and-lower
inventory level . Network flow . Solution algorithm
1 Introduction In today’s highly competitive environment, efficient and effective inventory management is necessary to ensure that retailers have a stable supply of products to satisfy * Shangyao Yan [email protected]
1
Innovation Center for Intelligent Transportation and Logistics, College of Construction and Development, Feng Chia University, Taichung 40724, Taiwan
2
Department of Civil Engineering, National Central University, Chungli 32001, Taiwan
Lin C.-K., Yan S., Hsiao F.-Y.
fluctuations in market demand. Most customers prefer to obtain products immediately rather than wait for what they have ordered. Insufficient inventory can result in the loss of sales or time-consuming back orders. On the other hand, excess inventory should also be avoided, as it will produce loss of profit due to increased costs. It is important to maintain the right balance of stock in warehouses for shipment to the retailers. Vendor managed inventory (VMI) is an approach used to streamline supply chain performance, in which the supplier is responsible for optimizing and maintaining the retailers’ inventory levels (for example, see Angulo et al. 2004; Simchi-Levi et al. 2005; and Lee and Seungjin 2008). VMI is a business practice where the retailer provides records of product activities to the supplier for comparison agains
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