Strategic buyer stockpiling in supply chains under uncertain product availability and price fluctuation

Abstract

Due to concerns about potential product shortages and price increases from an unforeseen production disruption of uncertain length, strategic buyers might decide to stockpile extra products. Such stockpiling behavior could amplify the disruption-induced imbalance between demand and supply, leading to new stockpiling-driven shortages. This paper studies the interaction between product shortages and stockpiling behavior, and the identification and optimization of such stockpiling behavior. Firstly, considering both strategic and non-strategic buyers, the forecasting of stockpiling-driven product shortage is analyzed. Then, by maximizing the perceived value of hoarding for strategic buyers, a stockpiling time model and strategies are proposed. The stockpiling-driven shortages fall into three patterns, mainly depending on the proportion of strategic buyers in the market, the intensity and duration of production interruption, and the product availability linked to the uninterrupted manufacturer. The optimal stockpiling strategy may appear in five scenarios, i.e., “stockpiling at the beginning of disruption”, “stockpiling before the product price rises”,“stockpiling when the product price rises”, “stockpiling after the product price rises”, and “non-stockpiling”. The decision mainly depends on the trade-off between the determined inventory holding cost at the present stage and the uncertain future loss caused by price increases and stock-outs. To be specific, inventory holding cost, the length of product shortages triggered by strategic buyers’ dynamic stockpiling behavior, and the shortfall level in real-time production linked with buyer composition, disruption intensity, and manufacturer's capability.