Strategic Inventory with an Unreliable Manufacturer across Multiple Supply Chain Structures

Abstract

Supply stability has become increasingly crucial amid the reshaping of global supply chains. This paper introduces a novel analytical framework to examine the retailer’s strategic inventory decisions and the effects on the profits of the manufacturer and the supply chain under three supply chain structures: complete decentralization, partial centralization, and complete centralization. Utilizing a game-theoretic approach, we derive equilibrium outcomes revealing that strategic inventory enhances the manufacturer’s profit under complete decentralization. In contrast, this positive effect on the manufacturer’s profit is not always observed under partial centralization. Our findings also indicate that the retailer’s decision to adopt strategic inventory, along with the impact on the supply chain’s profit, is contingent upon the supply stability level and the unit inventory cost. We further analyze the performance of the supply chain under three structures and find that complete centralization always achieves the optimal profit when the retailer does not choose strategic inventory. However, complete centralization does not always achieve the optimal profit when the retailer adopts strategic inventory. These findings provide new insights into the role of strategic inventory across various supply chain structures.