Adjusting VMI settings for overlapping successive models, with stock-dependent demand and cannibalization: A case study in consumer electronics retailing in Germany

This thesis develops a method to optimize the inventory-related performance of a VMI (Vendor Managed Inventory) in retailing environments, for two successive products with overlapping lifecycles, under stock-dependent demand. The study refers to existing research in different fields, such as inventory policies and VMIs, retailing of substitutable products, stock-dependent demands and product lifecycle management. However, no study encompassing all these research streams could be found, and thus an abductive approach is developed, aiming at building new theory. The thesis draws upon a case study at Sony Germany, which has started an ambitious VMI initiative with the largest retailer of consumer electronics products in Germany. First, stock and sales data available, along with insights collected among employees, is used to understand the key profit-drivers when lifecycles of the two products overlap, and a set of indicators is propounded to measure them. The pattern of sales in relation to inventories of the two products is studied, and results in the validation of the stock-dependent demand assumption, with demand following a Poisson distribution of parameter λ [on-hand stock]. Demand for the new product is also found to be negatively affected by stock levels of the old product, in an exponential way. Second, a model is built and a scenario- based simulation embedding the patterns previously established is performed to evaluate different strategies to steer the stock levels in the VMI. Scenarios are evaluated against the proposed set of indicators, but no scenario is found to over perform consistently the others. Nevertheless interesting patterns emerge and it is possible to relate the performance observed to specificities of scenarios and product contexts. Using the patterns identified, a set of guidelines is suggested, along with proposals for practical implementation.