Inventory sharing of professional optics product supply chain with equal power agents

Abstract

This study investigates the inventory sharing policy of a professional optics product supply chain based on a real case study. The supply chain sells a product via two sales agents with equal power. The manufacturer receives a single order from each agent at the beginning of the selling season. Stock is kept in the manufacturer’s central warehouse. Thus, the agents hold virtual inventory only. To obtain greater flexibility and earn more profit, the agents implement an inventory sharing policy between themselves, under which they can trade the excess product by negotiation. This study seeks to answer three questions regarding the implementation of inventory sharing: (1) Does inventory sharing always benefit all members of the supply chain? (2) Should the manufacturer charge agents service fees and if so, how much? (3) What is the mechanism for achieving an all-win situation? By formulating the problem as a mixed Stackelberg and Nash-bargaining game, this study observes that the current negotiation mechanism does not always benefit the supply chain and the manufacturer, because it gives too much flexibility to agents. An all-win leading inventory sharing mechanism is then proposed, and managerial insights are generated.