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Decentralized Procurement in Light of Strategic Inventories

Author

Listed:
  • Anil Arya

    (Fisher College of Business, Ohio State University, Columbus, Ohio 43210)

  • Hans Frimor

    (School of Business and Social Sciences, Aarhus University, DK-8000 Aarhus C, Denmark)

  • Brian Mittendorf

    (Fisher College of Business, Ohio State University, Columbus, Ohio 43210)

Abstract

The centralization versus decentralization choice is perhaps the quintessential organizational structure decision. In the operations realm, this choice is particularly critical when it comes to the procurement function. Why firms may opt to decentralize procurement has been often studied and confirmed to be a multifaceted choice. This paper complements existing studies by detailing the trade-offs in the centralization versus decentralization decision in light of firms' strategic use of inventories to influence supplier pricing. In particular, we demonstrate that a firm's decision to cede procurement choices to its individual divisions can help moderate inventory levels and provide a natural salve on supply chain frictions. This paper was accepted by Serguei Netessine, operations management .

Suggested Citation

  • Anil Arya & Hans Frimor & Brian Mittendorf, 2015. "Decentralized Procurement in Light of Strategic Inventories," Management Science, INFORMS, vol. 61(3), pages 578-585, March.
    • Handle: RePEc:inm:ormnsc:v:61:y:2015:i:3:p:578-585
    DOI: 10.1287/mnsc.2014.1908
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    References listed on IDEAS

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    Cited by:

    1. Xiaowei Hu & Jaejin Jang & Nabeel Hamoud & Amirsaman Bajgiran, 2021. "Strategic Inventories in a Supply Chain with Downstream Cournot Duopoly," Papers 2109.06995, arXiv.org, revised Jan 2022.
    2. Lang Xiong & Tingting Xiao & Fuhai Nie, 2022. "Group Buying of Competing Retailers with Strategic Inventory," Sustainability, MDPI, vol. 14(20), pages 1-18, October.
    3. Liu, Xuxu & Zhao, Da & Ji, Qingkai & Zeng, Yinlian & Hu, Xiangpei, 2023. "Managing strategic inventory under retailer competition," European Journal of Operational Research, Elsevier, vol. 308(3), pages 1206-1219.
    4. Xiaole Wu & Fuqiang Zhang & Yu Zhou, 2022. "Brand Spillover as a Marketing Strategy," Management Science, INFORMS, vol. 68(7), pages 5348-5363, July.
    5. Fabio Antoniou & Raffaele Fiocco, 2019. "Strategic inventories under limited commitment," RAND Journal of Economics, RAND Corporation, vol. 50(3), pages 695-729, September.
    6. Saha, Subrata & Mantin, Benny & Majumder, Sani & Nielsen, Izabela, 2024. "On the interdependence of strategic inventories and new product generation introduction," International Journal of Production Economics, Elsevier, vol. 271(C).
    7. Yang, Xi & Dai, Bin & Xie, Xia, 2024. "Supplier encroachment strategies in a retail platform with strategic inventory holding behavior," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 187(C).
    8. Li, Jin & Shi, Victor, 2019. "The benefit of horizontal decentralization in durable good procurement," Omega, Elsevier, vol. 82(C), pages 13-23.
    9. Mao Yuan & Shi‐hua Ma & Xu Guan & Ying‐Ju Chen, 2021. "Channel configuration in a complementary market under different power structures," Naval Research Logistics (NRL), John Wiley & Sons, vol. 68(2), pages 157-158, March.
    10. Zhang, Xuefeng & Zhang, Yutan & Li, Guo, 2024. "Strategic inventory in semi-conductor supply chains under industrial disruption," International Journal of Production Economics, Elsevier, vol. 272(C).
    11. Jiahua Zhang & Lian Qi & Shilu Tong, 2021. "Dynamic Contract under Quick Response in a Supply Chain with Information Asymmetry," Production and Operations Management, Production and Operations Management Society, vol. 30(5), pages 1273-1289, May.
    12. QU, Zhan & RAFF, Horst, 2023. "Two-part tariffs, inventory stockpiling, and the bullwhip effect," European Journal of Operational Research, Elsevier, vol. 308(1), pages 201-214.
    13. Mustafa O. Kabul & Ali K. Parlaktürk, 2019. "The Value of Commitments When Selling to Strategic Consumers: A Supply Chain Perspective," Management Science, INFORMS, vol. 65(10), pages 4754-4770, October.
    14. Li, Jin & Yang, Shilei & Shi, Victor & Zhai, Senjing, 2020. "Partial vertical centralization in competing supply chains," International Journal of Production Economics, Elsevier, vol. 224(C).
    15. Toshiki Matsuoka, 2023. "Input price discrimination and strategic inventory," Manchester School, University of Manchester, vol. 91(2), pages 118-138, March.
    16. Zhan Qu & Horst Raff, 2021. "Vertical Contracts in a Supply Chain and the Bullwhip Effect," Management Science, INFORMS, vol. 67(6), pages 3744-3756, June.
    17. Li, Jin & Yi, Liao & Shi, Victor & Chen, Xiding, 2021. "Supplier encroachment strategy in the presence of retail strategic inventory: Centralization or decentralization?," Omega, Elsevier, vol. 98(C).

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