Storage constrained vendor managed inventory models with unequal shipment frequencies

• We consider a vendor managed inventory model under a contractual storage agreement.
• We allow unequal shipment frequencies to the retailers.
• We develop an exact solution procedure to solve the relaxed optimization problem.
• We propose a cost and computational efficient method to generate near-optimal delivery schedule.
• We conduct extensive computational experiments to assess the cost performance of the heuristic method.

We consider a supply chain where a vendor manages its multiple retailers' stocks under a vendor managed inventory (VMI) contract that specifies upper stock limits at the retailers' premises and overstock costs for exceeding those limits. We formulate a mixed integer nonlinear program that minimizes total supply chain costs and allows unequal shipment frequencies to the retailers. We develop an algorithm to solve its relaxed version which provides a lower bound cost solution. We propose a cost efficient heuristic procedure to generate delivery schedules to the retailers. We conduct a sensitivity analysis to provide insights on the performance of the proposed heuristic. Results show that our heuristic finds optimal or near optimal solutions, and it proposes substantial savings compared to the total supply-chain cost in the cases where there is no VMI and where there is VMI but with equal shipment frequencies to retailers.