Profit model and algorithm of distribution system for vendor managed inventory

In order to increase the profit of distribution system, the distribution network was studied whose topology structure was one distributor or supplier and many retailers, the system optimization was analyzed when the product demand had stochastic price elasticity, retailer inventory control policy of cycle check and vendor managed inventory (VMI)mode were adopted, the profit optimization model and solving algorithm of distribution system were established. Calculation result shows that the ratio between supplying goods price and normal wholesale price doesn't affect the model optimal solution, total sales and suppliers' profits decrease with the increase of goods retail prices, but the retailers' profits increase. So the ratio between supplying goods price and normal wholesale price can be determined through the negotiation when total system profit is maximal, and suppliers' enthusiasm can be aroused when a certain proportion profit is transferred from retailers to suppliers.