Strategic inventory in the presence of socially responsible dual distribution channels

This paper examines how strategic inventory affects pricing decisions and contractual outcomes of a dual-channel supply chain with the consideration of corporate social responsibility. To highlight the role of CSR, we first extend the existing understanding of dual-channel supply chain dynamics to a for-profit dynamic setting. Thereafter, we analyze two cases where either the retailer or the supplier may be socially responsible. We find that although the presence of dual distribution arrangements can suppress retailer strategic inventory buildup, it may also lead to the retailer preferring the dynamic contract even for a sufficiently high holding cost, which is not the case in the single channel. We further show that the retailer's strategic inventory decision is influenced by the level of social concern, supplier's direct selling efficiency, and inventory holding cost. The retailer's (supplier's) social concern increases (decreases) the strategic inventory quantity, which significantly alters the contractual outcomes of the dual-channel supply chain. Interestingly, we find that although either channel member's social concern or strategic inventory can alleviate double-marginalization effect, their interference may result in lower firm profit and supply chain inefficiency.

Automated summary

This paper examines the impact of strategic inventory on pricing decisions and contractual outcomes in a dual-channel supply chain with consideration of corporate social responsibility. The study finds that dual distribution arrangements can suppress strategic inventory buildup by retailers but may also lead to a preference for dynamic contracts. The retailer's strategic inventory decision is influenced by social concern, the supplier's direct selling efficiency, and inventory holding cost, which significantly alters the contractual outcomes. Interestingly, interference between social concern and strategic inventory can lead to lower firm profit and supply chain inefficiency despite mitigating double-marginalization effect.