Enhancing Customer–Supplier Coordination Through Customer-Managed Inventory.

This article focuses on analyzing customer-managed inventory (CMI) as a supply chain strategy where the customer controls the supplier's inventory decisions to improve responsiveness and overall supply chain performance. It develops a two-echelon inventory model capturing the interaction between a supplier and a customer, showing that successful CMI implementation requires appropriate incentive mechanisms, including cost-sharing and wholesale price negotiation, to achieve mutually beneficial outcomes. Due to the complexity of the coupled model, the authors propose a decoupled approximate model with pseudo cost parameters that yields near-optimal, closed-form solutions facilitating practical policy design. Using a case study based on Hewlett Packard's network printer division, the study demonstrates that properly designed CMI contracts can reduce total inventory-related costs and highlights operational conditions—such as long supplier lead times and high supplier holding costs—that favor CMI adoption. The article concludes that while CMI offers significant benefits, its success depends on carefully structured incentives and acknowledges that additional factors like multisourcing and product design coordination warrant further research.