Modeling and Analyzing One Vendor-Multiple Retailers VMI SC Using Stackelberg Game Theory

Game theory is a powerful tool for analyzing the Supply chain (SC) with different conflicting elements. Among them, the Stackelberg game is the one in which a player as leader has more power than the other ones as followers. Since in many SC systems one element has, in essence, more power than the others; the Stackelberg game has found many applications in SC studies. In this paper, we apply the Stackelberg game-theoretic approach and the corresponding equilibrium point to formulate and analyze a two echelon VMI SC. Comprehensive computational results on an experimental case are conducted to numerically analyze the performance of VMI system against three groups of critical parameters. Moreover, a critical comparison demonstrates the poorer performance of decentralized VMI system than centralized one. This naturally necessitates designing proper contracts between VMI partners in order to more effectively implement the realistic decentralized system.