Supply chain integration under vendor managed inventory mode of operation considering stockout

This paper formulates a two-echelon single-vendor multi-buyer supply chain model assuming unsatisfied demand at the vendor to be backordered. The vendor and buyers apply Vendor Managed Inventory (VMI) mode of operation. The vendor gives the product to the buyers. The operational parameters are sales quantity, sales price and maximum number of stockouts for each buyer at the vendor's location. Channel profit of the supply chain and contract price between the vendor and buyers are determined based on the operational parameters. In order to find out the optimal values of the parameters, a mathematical model is formulated. Two heuristics are proposed to solve the addressed problem. Some numerical problems are provided and each problem is solved utilizing the heuristics. We have also solved the sample problems utilizing LINGO optimization solver in order to evaluate the performance of the proposed algorithms.