NDLI: Inventory hedging and coordination under inventory-level-dependent demand

Content Provider	IEEE Xplore Digital Library
Author	Ting Zhang Huang, G.Q. Yuan Shi Shulin Lan
Copyright Year	2014
Description	Author affiliation: Guangzhou Higher Educ. Mega Centre, South China Univ. of Technol., Panyu, China (Yuan Shi) \|\| Dept. of Ind. & Manuf. Syst. Eng., Univ. of Hong Kong, Hong Kong, China (Ting Zhang; Huang, G.Q.; Shulin Lan)
Abstract	This paper considers an inventory coordination problem in a group company where the group headquarter manages a centralized distribution center (HQ-CDC) providing inventory spaces and services for its subsidiary companies whose demands are inventory-level-dependent. To deal with uncertainty in inventory management, subsidiaries usually reserve more inventory spaces than their actual demands. This extra inventory space strategy is called “inventory hedging” in this research. As a result, subsidiaries may reserve excessive spaces which are never required for their business operations, leading to inconsistency with the lean warehousing and logistics strategy that the HQ-CDC would like to implement. This paper theoretically examine if the inventory hedging strategy is advantageous to subsidiaries, and if so how best such a strategy should be implemented. A coordination scheme with dynamic pricing is introduced here to coordinate the implementation of the inventory hedging strategy. Two types of prices are introduced. One is the basic price used for block-reserving inventory spaces. The other price is the “hedging price” which is the extra amount to the basic price in addition charged for the space more than the actual demand. Two models are developed. In one model, a Nash game is played to reach an optimal strategy for both parties. In the other model, a Stackelberg game is played in which the HQ-CDC serves as the leader. It is demonstrated that the coordination scheme through dynamic price can successfully reduce inventory hedging amount required by the subsidiaries and can increase the HQ-CDC's profit, as compared to the decentralized decision model without considering the hedging price.
Starting Page	658
Ending Page	664
File Size	405169
Page Count	7
File Format	PDF
e-ISBN	9781479952830
DOI	10.1109/CoASE.2014.6899398
Language	English
Publisher	Institute of Electrical and Electronics Engineers, Inc. (IEEE)
Publisher Date	2014-08-18
Publisher Place	Taiwan
Access Restriction	Subscribed
Rights Holder	Institute of Electrical and Electronics Engineers, Inc. (IEEE)
Subject Keyword	Games Companies Educational institutions Aerospace electronics Numerical models Biological system modeling pricing hedging game theory inventory management inventory-level-dependent demand
Content Type	Text
Resource Type	Article

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1	Ministry of Education (GoI), Department of Higher Education	Sanctioning Authority	https://www.education.gov.in/ict-initiatives
2	Indian Institute of Technology Kharagpur	Host Institute of the Project: The host institute of the project is responsible for providing infrastructure support and hosting the project	https://www.iitkgp.ac.in
3	National Digital Library of India Office, Indian Institute of Technology Kharagpur	The administrative and infrastructural headquarters of the project	Dr. B. Sutradhar bsutra@ndl.gov.in
4	Project PI / Joint PI	Principal Investigator and Joint Principal Investigators of the project	Dr. B. Sutradhar bsutra@ndl.gov.in Prof. Saswat Chakrabarti will be added soon
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