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Strategic Inventories in Competitive Supply Chains Under Bargaining

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Strategic inventory refers to the inventory held by firms purely out of strategic considerations other than operational reasons. Qinshen Tang discusses 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.

Image courtesy of interviewee. January 16, 2024

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This video video discusses the reasons firms hold inventory and introduces the concept of strategic inventory, which goes beyond traditional justifications like cycle, pipeline, speculative, and safety inventory. It illustrates this with an example from a steel manufacturer in Spain that holds scrap metal inventory not just for operational needs but to negotiate better prices.

This video video emphasizes that strategic inventory is used to enhance negotiation power against suppliers, impacting market dynamics. It contrasts scenarios of bilateral monopoly and competitive supply chains, concluding that strategic inventory can serve unique roles, such as signaling and influencing collusion among retailers to avoid detrimental competition.

Key findings include:
1. **Strategic Inventory's Role**: It can deviate from traditional uses; in competitive settings, it might signal to competitors to avoid excessive quantity competition.
2. **Bargaining Context**: While the conventional view links strategic inventory to negotiating power, the dynamics may change significantly when considering chain-to-chain competition.
3. **Implications for Retailers**: Retailers may benefit from including inventory decisions in negotiations, as it does not always favor them to relinquish decision-making power.

Overall, the text stresses the nuanced and context-dependent nature of inventory strategies within different supply chain frameworks and highlights the complexity of inventory roles in negotiations.

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Well, there are many reasons

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that firms actually will hold inventory.

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For example, cycle inventory for Economi mix of scale

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pipeline inventory to account for lead time

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and speculative inventory to mitigate price fluctuations

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and safety inventory to deal with the uncertainty

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of demand and supply.

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But if we eliminate all these classical reasons

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for holding inventory, should a form still hold inventory?

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And the answer is yes.

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For instance, the steel manufacturer salsa located in Spain,

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procures scrap metal ranging from this local scrap do list

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to larger euro scrap merchants.

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The manufacturer X does not need to carry a high level

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of raw materials at any time

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because the supply is sufficiently diversified.

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However, the company still stock large pools of scrap metal

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outside this factory, leveraging this inventory

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to negotiate better prices for purchasing the raw materials.

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So as you can see here, this practice

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of manipulating inventory levels for strategic gain, such

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as influencing the surprise prices

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or market dynamics, is a sophisticated approach

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that goes beyond this traditional inventory management.

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So we refer to the inventory held by firms purely out

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of strategic considerations other than those just mentioned

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operational reasons, as does strategic inventory.

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And a common S consideration is, for example,

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using the inventory to increase the negotiation power so as

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to lower the wholesale price

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of products purchase from agen suppliers.

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Actually, scholars have observed strategy inventory across

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various contexts such as consumer rebates, multi-channel

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copycatting, and et cetera.

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But all in a setting of one supply chain consisting

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of a supplier and a retailer,

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they will play the stackable game with the supplier

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as the leader and retailer as the follower.

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However, in practice, as you can see, that existing chain

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to chain competition informs usually

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bugging over counter turns instead

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of sequentially making decisions in a stagger

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game framework.

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And moreover, the role of strategic inventory that is

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to enhance the retailer's power actually appeals

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to us primarily due to the resemblance

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of this strategic role to a bargaining framework.

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Yet the bargaining framework provides a form of cooperation

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between the supplier and the retailer.

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So given the resemblance, it is unclear whether the role

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of strategic inventory

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Will compliment or be dominated

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by the bargaining framework.

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So in our study, we delve into the dynamics

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of two parallel supply chains, each comprising one supplier

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and a retailer operating over two period horizon.

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So we assume that the supplier

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and the retailer in the supply chain

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actually they will bargain over the trading terms.

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So we want to answer questions like

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on the bargaining framework, whether

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and how much inventory would the retailers hope

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that's the inventory play the same role in a competition

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as in a bilateral monopoly?

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And will it help a supply chain win the competition

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and thus carrying inventory improve the system

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performance or not?

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So as research acts employs a theoretical model,

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spending two periods involving two supply chains, each

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with the supplier and retailer,

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and to concentrate on the strategic aspects of inventory,

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the model simplifies certain reward factors such

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as production, cost, lead times, and salvage value.

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So actually this approach allows for a focused exploration

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of how bargaining over overall of prices, quantities,

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and inventory impacts the strategies

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and profitability of competing supply chains.

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So the study assumes that

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all the model parameters are publicly no.

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So additionally, the model in increases a benchmark scenario

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when no inventory is carried over serving as a point

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of comparison against the scenarios

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where strategy inventory is present.

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So we also compared results

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with those in a stackable gain setting.

04:55.345 --> 04:57.085
So this methodological choice

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actually isolates the S impacts

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of inventory decisions from other operational

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considerations, providing a cleaner understanding

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of the role and significance of strategy inventory

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in supply chain dynamics.

05:12.785 --> 05:16.685
Our studies findings are revealing a multifaceted

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in the scenarios of food bargaining,

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where audit trading terms the wholesale price audit quantity

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and inventory to carry are substitute bargaining.

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Our research observes that

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supply chains actually do not host strategy inventory

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in a bilateral monopoly setting.

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However, the picture changes on the chain to chain setting

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where strategy inventory comes into play.

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So as such, we can conclude that chain

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to chain competition leads to the strategic inventory,

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and that's the first results.

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The second is only one chain will carry inventory

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and the role that inventory plays

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deviates from traditional use of inventory

06:04.225 --> 06:06.885
to increase the retailer's negotiation power.

06:08.275 --> 06:12.215
Now it serves as a unique role as a tool for signaling

06:12.595 --> 06:14.815
and inducing collusive behavior

06:14.985 --> 06:16.535
among competing supply chains

06:16.995 --> 06:20.415
to avoid two fearers quantity competition.

06:21.635 --> 06:25.535
So the results also highlight that strategic inventory,

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while beneficial in some contest,

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can have detrimental effects on supply chain system.

06:32.895 --> 06:36.555
And in contrast on the partial bargaining scenarios,

06:37.165 --> 06:39.955
where here inventory decisions are not

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part of the bargaining.

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So inventory is held in both bilateral monopoly

06:46.455 --> 06:48.115
and horizontal competition context.

06:49.095 --> 06:51.475
So here inventory actually plays a role

06:52.055 --> 06:54.915
in enhancing the retailer's negotiation power.

06:55.735 --> 06:58.675
And this underscores the diverse strategic roles

06:59.935 --> 07:02.595
can conserve on the various bargaining frameworks.

07:03.535 --> 07:08.515
So this insights actually also emphasize the nuance on con

07:08.655 --> 07:12.555
and context dependence nature of strategic inventory.

07:13.295 --> 07:15.515
So illustrating its variety roles

07:15.975 --> 07:18.795
and impacts across different supply chain scenarios.

07:20.675 --> 07:25.075
I think that key takeaways here are first the convention

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wisdom about strategic inventory should be taken

07:28.625 --> 07:31.835
with caution because the traditional role

07:31.855 --> 07:34.155
of this jet inventory is

07:34.155 --> 07:36.435
to empower the retail in the supply chain.

07:36.715 --> 07:38.675
Actually is complete three now dominated

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by full bargaining framework,

07:40.815 --> 07:44.035
but still present if inventory is not bargained, right?

07:44.615 --> 07:45.915
So that's the faster takeaway.

07:46.495 --> 07:49.235
The second is that the inventory driven

07:49.335 --> 07:51.035
by this horizontal competition

07:51.995 --> 07:54.595
actually plays a different strategic role of signaling

07:54.975 --> 07:57.435
to the competitor to avoid an

07:57.435 --> 08:00.755
otherwise adverse quantity competition if both retailers

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carried high inventory.

08:03.555 --> 08:07.055
So the final is that despite the full cooperation nature

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of the food bargaining framework,

08:10.155 --> 08:12.895
it is not always in the retailer's interest

08:12.895 --> 08:15.535
to give up the decision power on inventory.

08:16.555 --> 08:19.335
So it would be better sometimes for the retailer

08:19.875 --> 08:22.095
to include it in the negotiation process

08:22.675 --> 08:24.215
or sometimes to give up.

Strategic Inventory in Supply Chain Management

00:00:00 - Well, there are many reasons that firms actually will hold inventory. For example, cycle inventory for Economi mix of scale pipeline inventory to account for lead time and speculative inventory to mitigate price fluctuations and safety inventory to deal with the uncertainty of demand and supply. But if we eliminate all these classical reasons for holding inventory, should a form still hold inventory? And the answer is yes. For instance, the steel manufacturer salsa located in Spain,
00:00:39 - to larger euro scrap merchants. The manufacturer X does not need to carry a high level of raw materials at any time because the supply is sufficiently diversified. However, the company still stock large pools of scrap metal outside this factory, leveraging this inventory to negotiate better prices for purchasing the raw materials.
00:01:08 - of manipulating inventory levels for strategic gain, such as influencing the surprise prices or market dynamics, is a sophisticated approach that goes beyond this traditional inventory management. So we refer to the inventory held by firms purely out of strategic considerations other than those just mentioned operational reasons, as does strategic inventory.
00:01:40 - using the inventory to increase the negotiation power so as to lower the wholesale price of products purchase from agen suppliers. Actually, scholars have observed strategy inventory across various contexts such as consumer rebates, multi-channel copycatting, and et cetera. But all in a setting of one supply chain consisting of a supplier and a retailer,
00:02:11 - as the leader and retailer as the follower. However, in practice, as you can see, that existing chain to chain competition informs usually bugging over counter turns instead of sequentially making decisions in a stagger game framework. And moreover, the role of strategic inventory that is to enhance the retailer's power actually appeals
00:02:41 - of this strategic role to a bargaining framework. Yet the bargaining framework provides a form of cooperation between the supplier and the retailer. So given the resemblance, it is unclear whether the role of strategic inventory Will compliment or be dominated by the bargaining framework. So in our study, we delve into the dynamics of two parallel supply chains, each comprising one supplier

Strategic Inventory in Supply Chain Negotiations

00:03:17 - So we assume that the supplier and the retailer in the supply chain actually they will bargain over the trading terms. So we want to answer questions like on the bargaining framework, whether and how much inventory would the retailers hope that's the inventory play the same role in a competition as in a bilateral monopoly? And will it help a supply chain win the competition
00:03:49 - performance or not? So as research acts employs a theoretical model, spending two periods involving two supply chains, each with the supplier and retailer, and to concentrate on the strategic aspects of inventory, the model simplifies certain reward factors such as production, cost, lead times, and salvage value. So actually this approach allows for a focused exploration
00:04:22 - and inventory impacts the strategies and profitability of competing supply chains. So the study assumes that all the model parameters are publicly no. So additionally, the model in increases a benchmark scenario when no inventory is carried over serving as a point of comparison against the scenarios where strategy inventory is present.
00:04:52 - with those in a stackable gain setting. So this methodological choice actually isolates the S impacts of inventory decisions from other operational considerations, providing a cleaner understanding of the role and significance of strategy inventory in supply chain dynamics. Our studies findings are revealing a multifaceted in the scenarios of food bargaining,
00:05:24 - and inventory to carry are substitute bargaining. Our research observes that supply chains actually do not host strategy inventory in a bilateral monopoly setting. However, the picture changes on the chain to chain setting where strategy inventory comes into play. So as such, we can conclude that chain to chain competition leads to the strategic inventory,
00:05:53 - The second is only one chain will carry inventory and the role that inventory plays deviates from traditional use of inventory to increase the retailer's negotiation power. Now it serves as a unique role as a tool for signaling and inducing collusive behavior among competing supply chains to avoid two fearers quantity competition.

Strategic Roles of Inventory in Supply Chains

00:06:26 - while beneficial in some contest, can have detrimental effects on supply chain system. And in contrast on the partial bargaining scenarios, where here inventory decisions are not part of the bargaining. So inventory is held in both bilateral monopoly and horizontal competition context. So here inventory actually plays a role
00:06:55 - And this underscores the diverse strategic roles can conserve on the various bargaining frameworks. So this insights actually also emphasize the nuance on con and context dependence nature of strategic inventory. So illustrating its variety roles and impacts across different supply chain scenarios. I think that key takeaways here are first the convention
00:07:28 - with caution because the traditional role of this jet inventory is to empower the retail in the supply chain. Actually is complete three now dominated by full bargaining framework, but still present if inventory is not bargained, right? So that's the faster takeaway. The second is that the inventory driven by this horizontal competition actually plays a different strategic role of signaling to the competitor to avoid an
00:08:22 - carried high inventory. So the final is that despite the full cooperation nature of the food bargaining framework, it is not always in the retailer's interest to give up the decision power on inventory. So it would be better sometimes for the retailer to include it in the negotiation process or sometimes to give up.

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Human Rights and Corruption: Problems and Potential of Individualising a Systemic Problem

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Politics, Identity, and Class Certification on the U.S. Courts of Appeals

The City as a Growth Machine: Toward a Political Economy of Place

The Role of Education in Reducing Racial Inequality

Strategic Inventories in Competitive Supply Chains Under Bargaining

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