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Sharing inventory risk in supply chain : The implication of financial constraint

<12>This work appears in the second most important journal for Operations Management. The results are significant for practice. The allocation of inventory risk influences investment and thus the efficiency of a supply chain. Existing literature on supply chain contracting focusses on operation, neglecting financial aspects. We fill this gap by modelling the process using a Stackelberg game where the supplier is the leader; our mechanism provides the optimal inventory-sharing ratio. We demonstrate that to share the inventory risk in the supply chain improves the overall system efficiency, and hence the efficiency of computational mechanisms for supply chain automation.