Impact of Retailers with Knowledge of Supplier's Inventory on Supply Chain Performance

We model a supply chain consisting of a supplier and multiple retailers facing deterministic demand. We denote some retailers as strategic in the sense that given the supplier inventory information, they will implement the optimal stocking policy by incorporating such information. On the other hand, some retailers are denoted as naïve in the sense that they ignore supply information and resort to a simplistic ordering policy. Naïve retailers learn the optimal policy over time and adjust their orders accordingly. We study the dynamics of this game and investigate the impact of such strategic and naïve retailers on the cost, ordering pattern and stocking policies of all parties. We analyze the supply chain under two scenarios: the centralized supply chain where the objective is to minimize the total supply chain cost, and the decentralized supply chain where each self‐interested player minimizes its own cost in a Stackelberg game setting. We fully characterize the optimal policies under both centralized and decentralized scenarios and show that, surprisingly, the supply chain might be better off by virtue of naïve retailers. The result is driven by the fact that strategic and naïve players’ decisions shift the positioning of inventory in the supply chain with its final impact being determined by the relative costs of different retailer‐types. Our results also offer managerial insights into how access to supply information can improve supply chain performance.