Strategic Inventory Management of Deteriorating Products with Demand Disruptions

Abstract

The retailer’s strategic inventory management can convince the supplier to present lower wholesale prices in later orders. In practice, there are always unavoidable factors that cause disruption in the supply chain with undeniable impacts on strategic inventories, such as COVID-19. This is of greater significance in regard to goods that lose their freshness by time. The impacts of disruption in such products on managed strategic inventories and the retailer’s and supplier’s consequent behavior have not been addressed in the literature. Therefore, this research investigated the impacts of disruption in demand for deteriorating items on strategic inventories managed by the retailer. The results demonstrated that strategic inventory management is not always a threat for the supplier, and it can even be useful in certain conditions. Changes in goods deterioration levels were found to affect profit more seriously if disruption increased demand in the first period. We also specified the consequences of a decision to or not to manage strategic inventories in different cases of disruption and inventory management cost.