Dynamic supplier-managed inventory control and the beneficial effect of information sharing

This paper deals with a supplier-managed inventory (SMI) control for a two-echelon supply chain model with a service facility and a single supplier. The service facility is allocated to customers and provides a service using items of inventory that are purchased from the supplier. Assuming that the supplier knows the information of customer queue length as well as inventory position in the service facility at the time when it makes a replenishment decision, we identify an optimal replenishment policy which minimizes the total supply chain costs by reflecting this information into the replenishment decision. Numerical analysis demonstrates that the SMI strategy can be more cost-effective when the information of both customer queue length and inventory position is shared than when the information of inventory position only is shared.