Inventory, speculation, and sourcing strategies in the presence of online exchanges

Inventory, speculation, and sourcing strategies in the presence of online exchanges

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Article ID: iaor200937847
Country: United States
Volume: 9
Issue: 3
Start Page Number: 312
End Page Number: 331
Publication Date: Jun 2007
Journal: Manufacturing & Service Operations Management
Authors: ,
Keywords: supply & supply chains
Abstract:

We study how online business‐to‐business (B2B) exchanges affect buyer‐supplier relationships where an exchange takes the role of a secondary market in which buyers (of the initial product) can trade excess inventory to address supply and demand imbalances. Over the last several years, B2B exchanges have attempted to provide supply for storable industrial goods with some degree of design specification (as opposed to undifferentiated commodities). Through this research, we elucidate some aspects of how speculative online exchanges with a small number of participants might behave and the impact they will have on the use of long‐term contracts for supply. By endogenizing the evolution of spot prices in response to buyers' and their supplier's actions, we produce price fluctuations that exhibit significant autocorrelation in such markets. We show that participating buyers accrue network benefits as the number of participating firms increases through the inventory–pooling effects, resulting in reduced costs for them. However, a supplier acting strategically will counteract such benefits by restricting availability of goods to the spot market, sacrificing short‐term spot‐market revenue for long‐term contract volume.

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