An investigation of impacts of advanced coordination mechanisms on supply chain performance: Consignment, VMI I, VMI II, and CPFR
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This study investigates the impacts of four advanced coordination mechanisms on supply chain performance under different operational and environmental conditions. Compared with the traditional supply chain system, consignment, two variants of vendor managed inventory (VMI I, VMI II) systems, and collaborative planning, forecasting and replenishment (CPFR) are considered to be advanced coordination mechanisms. They have been advocated in the past due to the efficiency that they may bring through joint decision making and information sharing, which may ultimately result in improved supply chain performance. Analytical modeling based on cost minimization and profit maximization problems is first applied to make the direct comparison of coordination mechanisms with the traditional system. In order to conduct additional sophisticated analyses, this study applies simulation modeling based on time-phased operations, as in materials requirements planning (MRP) systems. A two-stage supply chain system, with a single buyer and a supplier, is considered and it incorporates multiple steps of operations including forecasting, replenishment, inventory management, production, and transportation. The simulation models consider six operational and environmental factors: coordination mechanism, information sharing, demand pattern, lead time, production capacity, and cost structure. The performance of each supply chain system is evaluated in terms of service levels, bullwhip effect, and profits of the buyer, the supplier, and the whole supply chain. The outcomes of simulation runs are statistically analyzed by comprehensively using multi-variate analysis of variance (MANOVA) and analysis of variance (ANOVA). The simulation results generally support the widely held view that more advanced coordination mechanisms have greater supply chain profit than less advanced ones. On the other hand, advanced coordination mechanisms like CPFR do not necessarily improve customer service level and bullwhip effect. VMI I was found to result in good performance in terms of supplier's service level (fill rate) and bullwhip effect. Information sharing does not only increase the supply chain profit, but also is required for the coordination mechanisms to achieve improved performance. Further properties of coordination mechanisms are analyzed and discussed.