Strategic inventory in semi-conductor supply chains under industrial disruption

Abstract

The semiconductor industry plays a crucial role in modern technology and the global economy. Over the past few years, it has experienced a series of supply disruptions, leading to significantly adverse impacts on the global economy. Holding strategic inventory is a common strategy adopted by industries to address supply disruptions, but the specific mechanisms and distinctions of its effects from those in traditional supply chain scenarios remain unclear. To explore the impact of strategic inventory in the semiconductor supply chain during industrial disruptions, we establish four game models for the following scenarios: (1) no strategic inventory with no supply disruption (NN), (2) no strategic inventory with supply disruption (ND), (3) strategic inventory with commitment contracts and supply disruption (SCD), and (4) strategic inventory with dynamic contracts and supply disruption (SDD). Firstly, we examine how the supply disruption impacts the overall performance of the semiconductor supply chain and its members. Secondly, we investigate the role of strategic inventory under commitment contracts and dynamic contracts in mitigating the effects of supply disruptions. We compare the preferences of the supply chain parties for the two types of contracts and identify potential equilibrium strategies. Our study reveals several interesting conclusions: (1) Supply disruptions adversely affect the overall performance of the semiconductor supply chain and its members. (2) Even if the manufacturer implements a commitment contract, the retailer will still choose to maintain strategic inventory. (3) When the probability of disruptions is relatively high, the retailer may maintain a higher level of strategic inventory under a commitment contract compared to a dynamic contract. (4) The use of dynamic contract results in superior mitigation of supply disruptions compared to the commitment contract, leading to greater benefits for the entire supply chain and its participants. (5) In dynamic contracts, the retailer may incur losses from holding strategic inventory in specific situations.