A single vendor multiple buyer Consignment Stock inventory model

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. This work is the conceptual evolution of recent publications of Persona at al. (2005, 2007), in order to promote the successfully applicability and comprehension of the CS policy in literature and in practice. The paper 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 by the point of view of the both partners (vendor and buyer) and by the point of view of the whole supply chain, following the adoption of a CS policy. We find the maximum and minimum inventory stock levels to store in buyers’ plant warehouse and the optimal quantity delivered from the vendor to each buyer in order to minimize 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.