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Decentralized Procurement in Light of Strategic Inventories

Author

Listed:
  • Anil Arya

    (Fisher College of Business, Ohio State University, Columbus, Ohio 43210)

  • Hans Frimor

    (School of Business and Social Sciences, Aarhus University, DK-8000 Aarhus C, Denmark)

  • Brian Mittendorf

    (Fisher College of Business, Ohio State University, Columbus, Ohio 43210)

Abstract

The centralization versus decentralization choice is perhaps the quintessential organizational structure decision. In the operations realm, this choice is particularly critical when it comes to the procurement function. Why firms may opt to decentralize procurement has been often studied and confirmed to be a multifaceted choice. This paper complements existing studies by detailing the trade-offs in the centralization versus decentralization decision in light of firms' strategic use of inventories to influence supplier pricing. In particular, we demonstrate that a firm's decision to cede procurement choices to its individual divisions can help moderate inventory levels and provide a natural salve on supply chain frictions. This paper was accepted by Serguei Netessine, operations management .

Suggested Citation

  • Anil Arya & Hans Frimor & Brian Mittendorf, 2015. "Decentralized Procurement in Light of Strategic Inventories," Management Science, INFORMS, vol. 61(3), pages 578-585, March.
    • Handle: RePEc:inm:ormnsc:v:61:y:2015:i:3:p:578-585
    DOI: 10.1287/mnsc.2014.1908
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    References listed on IDEAS

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    Cited by:

    1. Saha, Subrata & Mantin, Benny & Majumder, Sani & Nielsen, Izabela, 2024. "On the interdependence of strategic inventories and new product generation introduction," International Journal of Production Economics, Elsevier, vol. 271(C).
    2. Yang, Xi & Dai, Bin & Xie, Xia, 2024. "Supplier encroachment strategies in a retail platform with strategic inventory holding behavior," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 187(C).
    3. Jin Li & Xiaodong Yang & Victor Shi & Gangshu (George) Cai, 2023. "Partial centralization in a durable‐good supply chain," Production and Operations Management, Production and Operations Management Society, vol. 32(9), pages 2775-2787, September.
    4. Zhang, Xuefeng & Zhang, Yutan & Li, Guo, 2024. "Strategic inventory in semi-conductor supply chains under industrial disruption," International Journal of Production Economics, Elsevier, vol. 272(C).
    5. 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.
    6. Jiahua Zhang & Lian Qi & Shilu Tong, 2021. "Dynamic Contract under Quick Response in a Supply Chain with Information Asymmetry," Production and Operations Management, Production and Operations Management Society, vol. 30(5), pages 1273-1289, May.
    7. Li, Jin & Shi, Victor, 2019. "The benefit of horizontal decentralization in durable good procurement," Omega, Elsevier, vol. 82(C), pages 13-23.
    8. 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.
    9. Dong, Yongjie & Liu, ChenGuang & Zhao, Mengyuan, 2024. "Implementation of industrial symbiosis under environmental tax policy," International Journal of Production Economics, Elsevier, vol. 277(C).
    10. 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.
    11. Fabio Antoniou & Raffaele Fiocco, 2019. "Strategic inventories under limited commitment," RAND Journal of Economics, RAND Corporation, vol. 50(3), pages 695-729, September.
    12. Toshiki Matsuoka, 2023. "Input price discrimination and strategic inventory," Manchester School, University of Manchester, vol. 91(2), pages 118-138, March.
    13. Mustafa O. Kabul & Ali K. Parlaktürk, 2019. "The Value of Commitments When Selling to Strategic Consumers: A Supply Chain Perspective," Management Science, INFORMS, vol. 65(10), pages 4754-4770, October.
    14. Zhan Qu & Horst Raff, 2021. "Vertical Contracts in a Supply Chain and the Bullwhip Effect," Management Science, INFORMS, vol. 67(6), pages 3744-3756, June.
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    16. Lang Xiong & Tingting Xiao & Fuhai Nie, 2022. "Group Buying of Competing Retailers with Strategic Inventory," Sustainability, MDPI, vol. 14(20), pages 1-18, October.
    17. Li, Jin & Yang, Shilei & Shi, Victor & Zhai, Senjing, 2020. "Partial vertical centralization in competing supply chains," International Journal of Production Economics, Elsevier, vol. 224(C).
    18. Lezhen Wu & Xiaole Wu & Yu Zhou, 2023. "Commitment strategies and inventory decisions under supply disruption risk," Production and Operations Management, Production and Operations Management Society, vol. 32(8), pages 2619-2637, August.
    19. Li, Jin & Chen, Yanan & Liao, Yi & Shi, Victor & Zhang, Haixia, 2025. "Managing strategic inventories in a three-echelon supply chain of durable goods," Omega, Elsevier, vol. 131(C).
    20. Mao Yuan & Shi‐hua Ma & Xu Guan & Ying‐Ju Chen, 2021. "Channel configuration in a complementary market under different power structures," Naval Research Logistics (NRL), John Wiley & Sons, vol. 68(2), pages 157-158, March.
    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. Ke, Wan & Zhou, Xiaoyang & Lev, Benjamin & Shen, Wenjing, 2025. "Strategic Inventory with an Unreliable Manufacturer across Multiple Supply Chain Structures," Omega, Elsevier, vol. 133(C).

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