Optimized purchase quantity and profit of vendor managed inventory

For a kind of saleable goods in definite demand with good stock which is permissibly, going short for a time, a supply chain model of vendor managed inventory (VMI) is established on the basis of traditional supply chain profit model, with the purchase quantity and profit of VMI discussed as well. The optimized purchase quantity of VMI is proved more than that in the traditional supply chain, and the implementation of VMI is proved that the profit of purchaser will increase. On the other hand, the implementation of VMI will enable the vendor to increase profit if providing optimized matching conditions or long-term incentive. As a result, a theoretical foundation is provided for both the vendor and purchaser to merge their inventories together. A numerical example is given to verify the conclusion as above.