Inventory Sharing in the Presence of Commodity Markets

Abstract

T his study investigates the value of inventory sharing in the presence of spot and forward markets. We consider a multi-period setting where two firms process a common commodity to meet stochastic demands. They can buy and sell the commodity through both the spot and forward markets. They can also share the commodity if one has leftover inventory while the other has excess demand. We first characterize the equilibrium strategies of the two firms. Our analysis reveals that in such a context, the value of inventory sharing is low when the forward price is directly used to value the sharing transactions. We then develop a structured trans-shipment price scheme that uses a linear combination of the spot and forward prices. We show that this method can substantially increase the value of inventory sharing. Our analysis also reveals that in the presence of liquid spot and forward markets, the value of inventory sharing mainly results from the difference of the transaction costs, and it increases if the market in which firms operate becomes more competitive.

Inventory Sharing Strategy for Disposable Medical Items between Two Hospitals

“…To induce the truth in inventory sharing between retailers, a coordination mechanism is proposed for the sharing relationship between manufacturer and retailer to achieve the maximal benefit. Park et al [9] consider the multi-period inventory sharing problem in the spot and forward market. They develop optimal equilibrium strategies of two firms and construct a structured transshipment pricing mechanism to benefit from inventory sharing.…”

“…(3) How are the stockout response decision and optimal order-up-to level affected by the cost features of the hospital and patient behavior? Park et al [9] present a model that addresses the first and second issues in a similar setting. They study the multi-period inventory sharing problem in the spot and forward market, in which a firm facing excessive demand can either purchase from the spot/forward market or send a sharing request to other firms.…”

Operational hedging or financial hedging? Strategic risk management in commodity procurement

“…Hence, the manufacturer will make a choice between the F‐ and C‐strategies. We note that the condition for ρ in Theorem 1c normally holds in practice because the short‐run price elasticity of commodities is sufficiently small (Goel & Gutierrez, 2011; Park et al., 2016); moreover, $$\eta \tau -2\sqrt {(1-\eta ^2)(1-\tau ^2)}<0$$ and $$\eta \tau +2\sqrt {(1-\eta ^2)(1-\tau ^2)}>1$$ hold except for sufficiently large values of η and τ. With a large demand uncertainty (i.e., $$\sigma _a>\sigma _M$$), a higher cost c of the supplier leads to a higher contract price and hence depresses the CPQ, resulting in less utility gain from contract procurement; thus, the manufacturer gives up the spot trading in the C‐strategy.…”

Proactive transshipment in the blood supply chain: A stochastic programming approach

“…Lateral transshipment policies can be classified into proactive and reactive transshipment [67]. Most past studies considered reactive transshipment, in which transshipment occurs when an inventory shortage is realized [8,10,16,39,54,66,79,80,84,85,86,88,89]. In these studies, the transshipment time was considered negligible to make the problem tractable.…”