Supply chain integration in vendor-managed inventory

This paper develops an analytical model that explores how important supply chain parameters affect the cost savings to be realized from collaborative initiatives such as vendor-managed inventory (VMI). Results from the model show that benefits, in the form of inventory cost reductions, may be generated from integration depending upon the ratio of the order costs of the supplier to the buyer and the ratio of the carrying charges of the supplier to the buyer. Results also show that these benefits are disproportionally distributed between buyers and suppliers.