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Title: Strategic inventories in competitive supply chains under bargaining
Authors: Chen, Lucy Gongtao
Gu, Weijia
Tang, Qinshen
Keywords: Business::Operations management::Inventory control
Business::Operations management::Supply chain management
Issue Date: 2023
Source: Chen, L. G., Gu, W. & Tang, Q. (2023). Strategic inventories in competitive supply chains under bargaining. Manufacturing & Service Operations Management.
Project: NTU-SUG 020022-00001 
Journal: Manufacturing & Service Operations Management 
Abstract: Problem definition: Strategic inventory refers to the inventory held by firms purely out of strategic considerations other than operational reasons (e.g., economies of scale). In this paper, we investigate the roles of strategic inventory in a system with two parallel supply chains under both full bargaining and partial bargaining, which differ in whether inventory is included in the bargaining terms. Results: i) Under full bargaining, horizontal competition can induce an asymmetric equilibrium whereby only one of the chains carries strategic inventory and benefits from it when the holding cost is small. The whole system, however, is worse off. ii) Under partial bargaining, regardless whether there is horizontal competition, the retailer in a supply chain always carries inventory when his bargaining power is small and the inventory holding cost is low. Furthermore, with horizontal competition, inventory hurts (improves) the system performance when the inventory holding cost is small (above a threshold and not too big). iii) Full bargaining can be inferior to partial bargaining when there is horizontal competition. Managerial insights: The conventional wisdom about strategic inventory should be taken with caution. Specifically, the traditional role of strategic inventory empowering the retailer in a supply chain is completely dominated by the full bargaining framework, yet is still present if inventory is not bargained. The inventory driven by horizontal competition plays a different strategic role of signalling to the competitor to avoid an otherwise adverse quantity competition if both retailers carried high inventory. Furthermore, despite the full cooperation nature of the full bargaining framework, it is not always in the retailer's interest to give up the decision power on inventory (partial bargaining) and include it in the negotiation process (full bargaining).
ISSN: 1523-4614
DOI: 10.1287/msom.2020.0223
Schools: Nanyang Business School 
Departments: Information Technology and Operations Management
Rights: © 2023 INFORMS. All rights reserved. This paper was published in Manufacturing & Service Operations Management and is made available with permission of INFORMS.
Fulltext Permission: open
Fulltext Availability: With Fulltext
Appears in Collections:NBS Journal Articles

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