An integrated pricing and deteriorating model and a hybrid algorithm for a VMI (vendor-managed-inventory) supply chain

Yugang Yu, George Q. Huang, Zhaofu Hong, Xiandong Zhang

Research output: Journal article publicationJournal articleAcademic researchpeer-review

18 Citations (Scopus)


This paper studies a vendor-managed-inventory (VMI) supply chain where a manufacturer, as a vendor, procures a type of nondeteriorating raw material to produce a deteriorating product, and distribute it to multiple retailers. The price of the product offered by one retailer is also influenced by the prices offered by other retailers because consumers can choose the product from any of the retailers. This paper is one of the first papers that propose an integrated model to study the influence of pricing and deterioration on the profit of such a VMI system. A hybrid approach combining genetic algorithms and an analytical method is developed for efficiently determining the optimal price of the product of each retailer, the inventory policies of the product and the raw material. Our results of a detailed numerical study show that parameters related to the market and deterioration have significant influences on the profit of the VMI system. However, different from common intuition, we find that an increase in the substitution elasticity of the product among different retailers can bring an increase in the retail prices of the product, while the increase of the market scale can reduce the retail prices.

Original languageEnglish
Article number5759725
Pages (from-to)673-682
Number of pages10
JournalIEEE Transactions on Automation Science and Engineering
Issue number4
Publication statusPublished - Oct 2011
Externally publishedYes


  • Deteriorating rate
  • inventory
  • pricing
  • supply chain
  • vendor managed inventory

ASJC Scopus subject areas

  • Control and Systems Engineering
  • Electrical and Electronic Engineering


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