Analysis of lead time effects on VMI system: system dynamics approach

Abstract

Vendor managed inventory (VMI) is a widely used strategy for the collaborative inventory management. It is known to be a very effective strategy in terms of inventory reduction and service level improvement. And these benefits of VMI depend on the environment of supply chain such as customer demand, ordering policy and lead time. This research aims to figure out the effect of lead time on the benefit of VMI system. System dynamics approach is adopted so as to model the traditional supply chain and the VMI supply chain. Verification and validation tests are carried out to check the appropriateness of the models. To perform the experimental test under various environments, multiple scenarios considering various characteristics of lead time were developed. Some interesting findings are observed from the experimental test and their managerial implications are discussed.