Optimization purchase price and the profit policy under vendor managed inventory

The optimization policy of the purchase price and the profit under vendor managed inventory (VMI) is studied. For a salable product, supply chain mode of VMI is established, which is based on deterministic demand, having initial stock and having stock-out cost. With the further analysis of the mode, VMI is found to increase profits of the buyer in the short-term motivation. But VMI will reduce profits of the supplier under the matching condition. And in the shortterm motivation, VMI will increase the purchase price to compensate the transfer cost of the supplier. As a result, the foundation of theory is provided to implement VMI in the supply chain, and have some definituded project significance.