Vendor-managed inventory: a literature review on theoretical and empirical studies and future research directions

Vendor-managed inventory (VMI) is a business practice in which the supplier manages the inventory at the customer's premises and makes replenishment decisions. VMI has been extensively studied over a short period of time since it was successfully implemented in the industry in the late 1980s. In this paper, we classify and review theoretical and empirical studies on VMI. In particular, we provide three classifications of theoretical papers focusing on the contractual agreement between supply chain partners, drivers of the benefits of VMI, and research approaches, while we classify empirical papers based on their research purposes and methodologies. One of our findings is that most theoretical studies examine event-based VMI contracts such as (z, Z)-type contracts, while the penalties/rewards are based on long-term performance in many VMI agreements observed in practice. We also find that most theoretical studies focus on cost reductions from VMI and their drivers, while empirical studies report various benefits of VMI such as lower inventory and fewer stockouts. We suggest several future research directions based on our literature review.