Spring 2006 Seminar Series

DATE: Thursday, March 2, 2006
LOCATION: E40-298
TIME: 4:15pm
Reception immediately following in the Philip M. Morse Reading Room, E40-106

SPEAKER:
Pinar Keskinocak
Associate Professor
School of Industrial Engineering
Georgia Institute of Technology

TITLE
Supply Chain Procurement with Inventory and Backordering Options

ABSTRACT
We study the strategic role of inventory in a sequential two-period procurement setting, where the supplier's capacity in the first period is limited and the retailer has the option to hold inventory. We compare the equilibrium under a dynamic contract, where the decisions are made at the beginning of each period, and a commitment contract, where the decisions for both periods are made at the beginning of the first period. We show that there is a critical capacity level below which the outcomes under both types of contracts are identical. When the first period capacity is above the critical level, the retailer holds inventory in equilibrium and the inventory is carried due to purely strategic reasons. We also analyze the optimal choice of capacity from the supplier's, the retailer's and the supply chain's perspective. Next, we extend this model to the case where the retailer can backorder demand, and analyze the impact of backordering on the strategic decision of the supplier and the retailer. This is joint work with Kasarin Charnsirisakskul and Paul Griffin