Consignment stock inventory model in an integrated supply chain

Abstract

The consignment stock (CS) is an innovative approach to manage inventories in which the vendor removes his inventory and maintains a stock of materials at the buyer's plant. The aim of this paper is to promote a successful application and comprehension of the CS policy both in literature and practice. In this paper, we deal with a multi-echelon inventory system in which one vendor supplies an item to multiple buyers. The study develops a single-vendor and multi-buyer consignment stock inventory model in which many clients can establish a CS policy with the same vendor. The aim of the paper is to evaluate the real economical and logistic benefits from the point of view of both the partners and the whole supply chain, following the adoption of a CS policy. We determine the maximum and minimum inventory stock levels to store in the buyers’ plant warehouse and the optimal quantity delivered from the vendor to each buyer in order to minimise total supply chain costs. Space constraints in clients’ plant warehouse, stock-out risk due to the variability of consumption and obsolescence risk for the materials stored are also considered.