Fall 2002

ME/IE 8773-8774

On Measuring Supplier Performance under Vendor-Managed-Inventory Programs

by

Jeannette Song
Associate Professor
Operations and Decision Technologies
Graduate School of Management
University of California at Irvine
Irvine, CA 92697-3125

Wednesday, October 30, 2002
3:30-4:30 p.m.
Room 108 ME
Broadcast on UNITE Channel A
Coffee and cookies will be available in 125 ME following the seminar

As a widely accepted performance measure, service level (fill rate) is often used in supplier contracts in Vendor-Managed-Inventory (VMI) programs. While this measure of supplier performance is sufficient in a supplier-retailer setting, we show that it is not necessarily so in a supplier-manufacturer setting. More specifically, using a two-stage capacitated supply chain model consisting of one manufacturer and one supplier in an Make-to-Order and VMI environment, we show that a required minimum supplier service level is in general insufficient for the manufacturer to warrant the desired customer service level. How the supplier achieves its service level to the manufacturer also matters. Therefore, some other alternative measures should be explored which ensures supplier's performance regardless of how the supplier manages the inventory. We suggest such supplier performance measures from certain bounds on the customer service level. We also derive an estimate of the customer service level in terms of the new measures.

Jeannette Song obtained her Ph.D. from Columbia University in 1991, and joined the faculty of UCI the same year. She was also on the faculty of Columbia University in 1996-98 and was a visiting professor at UC Berkeley in 1994-95. Professor Song's research lies in the general area of supply chain management, with a focus on stochastic modeling and optimal control of production and inventory processes. Her research has been funded by several National Science Foundation grants and has appeared in various leading professional journals. Professor Song is an associate editor of Management Science, Operations Research, and IIE Transactions, and is on the editorial board of Manufacturing & Service Operations Management.

Informal Faculty Luncheon: Wednesday, October 30, 2002, 12:00 noon. Meet in 1100 ME and go with other faculty to lunch. Prof. Song will be able to attend.