Inventory decision models with competition existing between two parallel supply chains

When the retailer of one supply chain is out of stock, his customers are likely, with some probability, to switch to other products of a substitutable brand from the retailer of another supply chain. Providing a two-brand substitution situation, this paper examines what impacts it has on the stocking level and expected profit of two supply chains when they are on three scenarios, namely, the ‘both chains implement Retailer-managed Inventory (RMI)’ scenario, the ‘one chain implements RMI and another chain implements Vendor-managed Inventory (VMI)’ scenario and the ‘both chains implement VMI’ scenario. No matter what scenario the two supply chains are on, the degree of substitution has similar effects on the stocking level and expected profit of every member. Under certain conditions, one supply chain that changes its own stocking decision can significantly affect not only its own stocking level and expected profit, but also the stocking level and expected profit of another supply chain because of the existence of competition.