A comparative study of VMI replenishment policies – toward rule‐based decision making based on Monte Carlo simulations

This paper discusses a few different replenishment policies for suppliers who practice Vendor Managed Inventory (VMI) with their retailer customer. The relationship between the supplier overall cost and replenishment decision variables are explored through Monte Carlo simulation coupled with sensitivity analysis. The advantage of the proposed dynamic (s, S) policy is demonstrated through parallel cost comparison of the different replenishment policy schemes. This paper also discusses the application of dynamic (s, S) replenishment policy in the scenario of perishable goods and in the scenario of supply chain process with long lead time. It presents the decision rules for applying the dynamic (s, S) policy and also points out the inappropriateness of certain policies under VMI setting.