Investigation on the Performances of Two Supply Chain Collaboration Programs - Consignment and VMI

The main objective of this study is to examine the impacts of two supply chain collaboration programs - consignment and Vendor-Managed Inventory (VMI) - on the performance of the supply chain system. The consignment and VMI have different forms of decision authority in that the supplier controls even buyer's inventory under VMI. By comparing the consignment and VMI with the fully collaborated system, where all the operational decisions are jointly made by both the supplier and buyer, this study intends to find out how to design the decision authority scheme of the supply chain system to achieve the ultimate goal of supply chain collaboration. This study develops three supply chain models that characterize the unique nature of the consignment, VMI, and fully collaborated system in terms of decision authority, information sharing, and cost payment. The proposed supply chain model represents a simple two-stage supply chain system with a single buyer and a supplier, and it incorporates multiple steps of operations including purchasing, inventory management, production, and transportation. The analysis on the averaged profits of the supply chain systems shows that the supply chain system with more collaborated decision making process generates higher supply chain profit On the other hand, the results of the profit differences of the consignment and VMI with the fully collaborated system does not support that VMI always outperforms the consignment.