Strategic inventory in capacitated supply chain procurement

Pınar Keskinocak, Kasarin Chivatxaranukul and Paul M. Griffin
Additional contact information
Pınar Keskinocak: Georgia Institute of Technology, Atlanta, GA, USA, Postal: Georgia Institute of Technology, Atlanta, GA, USA
Kasarin Chivatxaranukul: Production and Supply Chain Management Limited, Samutprakarn, Thailand, Postal: Production and Supply Chain Management Limited, Samutprakarn, Thailand
Paul M. Griffin: Georgia Institute of Technology, Atlanta, GA, USA, Postal: Georgia Institute of Technology, Atlanta, GA, USA

Managerial and Decision Economics, 2008, vol. 29, issue 1, 23-36

Abstract: We study the strategic role of inventory in a sequential two-period procurement setting, where the supplier's capacity in the first period is limited and the retailer has the option to hold inventory. We compare the equilibrium under a dynamic contract, where the decisions are made at the beginning of each period, and a commitment contract, where the decisions for both periods are made at the beginning of the first period. We show that there is a critical capacity level below which the outcomes under both types of contracts are identical. When the first period capacity is above the critical level, the retailer holds inventory in equilibrium and the inventory is carried due to purely strategic reasons; as capacity increases, so does the strategic role of inventory. The supplier always prefers lower capacity than the retailer, and the difference between supplier-optimal and supply-chain optimal capacities, and the corresponding profits, can be significant. Finally, we find that the retailer's flexibility to hold inventory is not always good for the participants or for the channel. Copyright © 2008 John Wiley & Sons, Ltd.

Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
http://hdl.handle.net/10.1002/mde.1398 Link to full text; subscription required (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:mgtdec:v:29:y:2008:i:1:p:23-36

DOI: 10.1002/mde.1398

Access Statistics for this article

Managerial and Decision Economics is currently edited by Antony Dnes

More articles in Managerial and Decision Economics from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley Content Delivery ().