Consignment Stocking Policy for Retailers with Inventory-Dependent Demand and Limited Shelf Space

Project: National Science and Technology CouncilNational Science and Technology Council Academic Grants

Project Details


This research is motivated by the affiliated Chang Gung Memorial Hospitals, which mainly adopt “consignment inventory” in medical supply. “Consignment inventory” is any stock that the supplier has placed in the warehouse without charge. It remains the property of the supplier until it is actually used and should not be included in the value of the stock on hand. It might create a condition of shared benefit for both the supplier and the retailer (consignee) by supply chain coordination. However, in the practice, problems might happen such as retailers have limited shelf spaces, and the inventory on shelves might influence customers’ demand; these important factors have never been considered in research in inventory management. This project intends to consider a single-manufacturer, single-buyer supply chain problem where the supplier produces a single item product and delivers it to the retailer on the basis of consignment policy. Demand on the retailer side is stock dependent. Decision variables in this model include the supplier’s replenishment lot sizes and the retailer’s number of reorders. The objective is the sale revenue less than the total costs including the supplier’s holding, setup, and replenishment cost and the retailer’s carrying cost on shelf. We will derive the upper bound of the retailer’s shelf spaces making different the supplier’s replenishment policy. Sensitivity analysis through numerical examples includes that (1) how do both the number and the lost sizes of supplier’s replenishment get changed as the retailer’s shelf inventory increases? ; and (2) as the retailer’s shelf spaces approach the upper bound, how does the supplier’s replenishment policy react? Research results of this project might enable managers to move from a reactive mode to a proactive one by taking both the retailer’s and the associated supplier’s perspective.

Project IDs

Project ID:PB10108-2807
External Project ID:NSC101-2221-E182-050
Effective start/end date01/08/1231/07/13


  • Stock-dependent demand
  • Consignment stock
  • Limited shelf space


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