A genetic algorithm for optimal operating parameters of VMI system in a two-echelon supply chain

Abstract This paper deals with the operational issues of a two-echelon single vendor–multiple buyers supply chain (TSVMBSC) model under vendor managed inventory (VMI) mode of operation. The operational parameters to the above model are: sales quantity and sales price that determine the channel profit of the supply chain, and contract price between the vendor and the buyer, which depends upon the understanding between the partners on their revenue sharing. In order to find out the optimal sales quantity for each buyer in TSVMBSC problem, a mathematical model is formulated. Optimal sales price and acceptable contract price at different revenue share are subsequently derived with the optimal sales quantity. A genetic algorithm (GA) based heuristic is proposed to solve this TSVMBSC problem, which belongs to nonlinear integer programming problem (NIP). The proposed methodology is evaluated for its solution quality. Furthermore, the robustness of the model with its parameters, which fluctuate frequently and are sensitive to operational features, is analysed.