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Strategic Inventory and Supply Chain Behavior

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Listed:
  • Robin Hartwig
  • Karl Inderfurth
  • Abdolkarim Sadrieh
  • Guido Voigt

Abstract

Based on a serial supply chain model with 2-periods and price-sensitive demand, we present the first experimental test of the effect of strategic inventories on supply chain performance. In theory, if holding costs are low enough, the buyer builds up a strategic inventory (even if no operational reasons for stock-holding exist) to limit the supplier's market power, to increase the own profit share, and to enhance the overall supply chain performance. The supplier anticipates the effect of the strategic inventory and differentiates prices to capture a part of the increased supply chain profits. Our results show that the positive effects of strategic inventories are even more pronounced than theoretically predicted, because strategic inventories empower buyers to reduce payoff inequalities and suppliers exhibit a willingness to reduce inequalities as long as their payoff remains above a certain threshold. Overall, strategic inventories have a double positive effect, a strategic and a behavioral, both reducing the average wholesale prices and damping the double marginalization effect and the latter leading to more equitable payoffs.
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Suggested Citation

  • Robin Hartwig & Karl Inderfurth & Abdolkarim Sadrieh & Guido Voigt, 2015. "Strategic Inventory and Supply Chain Behavior," Production and Operations Management, Production and Operations Management Society, vol. 24(8), pages 1329-1345, August.
    • Handle: RePEc:bla:popmgt:v:24:y:2015:i:8:p:1329-1345
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    File URL: http://hdl.handle.net/10.1111/poms.12325
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    Cited by:

    1. Chen, Pengyu & Liu, Xu & Wang, Qin & Zhou, Pin, 2022. "The Implications of Competition on Strategic Inventories Considering Manufacturer-to-Consumer Rebates," Omega, Elsevier, vol. 107(C).
    2. Anil Arya & Hans Frimor & Brian Mittendorf, 2015. "Decentralized Procurement in Light of Strategic Inventories," Management Science, INFORMS, vol. 61(3), pages 578-585, March.
    3. Fabio Antoniou & Raffaele Fiocco, 2019. "Strategic inventories under limited commitment," RAND Journal of Economics, RAND Corporation, vol. 50(3), pages 695-729, September.
    4. Wang, Ningning & Xing, Wei & Zhao, Xuan, 2022. "Strategic inventory in the presence of socially responsible dual distribution channels," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 159(C).
    5. Toshiki Matsuoka, 2023. "Input price discrimination and strategic inventory," Manchester School, University of Manchester, vol. 91(2), pages 118-138, March.
    6. Miao, Jie & Liu, Aijun & Wang, Ruiyao & Lu, Hui, 2022. "The influence of information asymmetry on the strategic inventory of deteriorating commodity," Omega, Elsevier, vol. 107(C).
    7. Mantin, Benny & Jiang, Lifei, 2017. "Strategic inventories with quality deterioration," European Journal of Operational Research, Elsevier, vol. 258(1), pages 155-164.
    8. Abhishek Roy & Stephen M. Gilbert & Guoming Lai, 2019. "The Implications of Visibility on the Use of Strategic Inventory in a Supply Chain," Management Science, INFORMS, vol. 65(4), pages 1752-1767, April.
    9. Michael Becker‐Peth & Kai Hoberg & Margarita Protopappa‐Sieke, 2020. "Multiperiod Inventory Management with Budget Cycles: Rational and Behavioral Decision‐Making," Production and Operations Management, Production and Operations Management Society, vol. 29(3), pages 643-663, March.
    10. Xu, Xiaoping & He, Ping & Zhou, Li & Cheng, T.C.E., 2023. "Coordination of a platform-based supply chain in the marketplace or reselling mode considering cross-channel effect and blockchain technology," European Journal of Operational Research, Elsevier, vol. 309(1), pages 170-187.
    11. Xiaowei Hu & Jaejin Jang & Nabeel Hamoud & Amirsaman Bajgiran, 2021. "Strategic Inventories in a Supply Chain with Downstream Cournot Duopoly," Papers 2109.06995, arXiv.org, revised Jan 2022.
    12. Lang Xiong & Tingting Xiao & Fuhai Nie, 2022. "Group Buying of Competing Retailers with Strategic Inventory," Sustainability, MDPI, vol. 14(20), pages 1-18, October.
    13. Nielsen, Izabela Ewa & Saha, Subrata, 2018. "Procurement planning in a multi-period supply chain: An epiphany," Operations Research Perspectives, Elsevier, vol. 5(C), pages 383-398.
    14. Chen, Pengyu & Liu, Xu & Zhou, Pin & Zhu, Stuart X., 2022. "The interplay between strategic inventories and cost misreporting in supply chains," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 163(C).
    15. Huiqi Guan & Haresh Gurnani & Xin Geng & Yadong Luo, 2019. "Strategic Inventory and Supplier Encroachment," Manufacturing & Service Operations Management, INFORMS, vol. 21(3), pages 536-555, July.
    16. Patanjal Kumar & Suresh Kumar Jakhar & Arijit Bhattacharya, 2021. "Two‐period supply chain coordination strategies with ambidextrous sustainable innovations," Business Strategy and the Environment, Wiley Blackwell, vol. 30(7), pages 2980-2995, November.
    17. Ventura, José A. & Bunn, Kevin A. & Venegas, Bárbara B. & Duan, Lisha, 2021. "A coordination mechanism for supplier selection and order quantity allocation with price-sensitive demand and finite production rates," International Journal of Production Economics, Elsevier, vol. 233(C).
    18. Liu, Xuxu & Zhao, Da & Ji, Qingkai & Zeng, Yinlian & Hu, Xiangpei, 2023. "Managing strategic inventory under retailer competition," European Journal of Operational Research, Elsevier, vol. 308(3), pages 1206-1219.
    19. Li, Dan & Chen, Jing & Liao, Yi, 2021. "Optimal decisions on prices, order quantities, and returns policies in a supply chain with two-period selling," European Journal of Operational Research, Elsevier, vol. 290(3), pages 1063-1082.
    20. Chen, Pingping & Zhao, Ruiqing & Yan, Yingchen & Li, Xiang, 2020. "Promotional pricing and online business model choice in the presence of retail competition," Omega, Elsevier, vol. 94(C).
    21. Li, Jin & Yi, Liao & Shi, Victor & Chen, Xiding, 2021. "Supplier encroachment strategy in the presence of retail strategic inventory: Centralization or decentralization?," Omega, Elsevier, vol. 98(C).
    22. Mantin, Benny & Veldman, Jasper, 2019. "Managing strategic inventories under investment in process improvement," European Journal of Operational Research, Elsevier, vol. 279(3), pages 782-794.
    23. QU, Zhan & RAFF, Horst, 2023. "Two-part tariffs, inventory stockpiling, and the bullwhip effect," European Journal of Operational Research, Elsevier, vol. 308(1), pages 201-214.

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