Strategic inventory is a collection of stored goods where the primary rationale is rooted in the

strategic interaction Game theory is the study of mathematical models of strategic interactions. It has applications in many fields of social science, and is used extensively in economics, logic, systems science and computer science. Initially, game theory addressed ...

among involved parties within a

supply chain A supply chain is a complex logistics system that consists of facilities that convert raw materials into finished products and distribute them to end consumers or end customers, while supply chain management deals with the flow of goods in distri ...

. Different from other motives for

inventory management Inventory management may refer to: * Inventory management (business): the function of understanding stock mix of a company and the different demands on that stock * Inventory management (video games), when a player adjusts the items in their inve ...

, such as fixed costs (e.g. cyclic inventory in the economic order quantity model), uncertainties in demand and supply (

safety stock Safety stock is a term used by logistics, logisticians to describe a level of extra inventory, stock which is maintained to mitigate the risk of stockouts, which can be caused, for example, by shortfalls in raw material availability or uncertainty ...

), and fluctuations in prices (speculative stock), strategic inventories emerge as a distinctive category.

Inventory theory Material theory (or more formally the mathematical theory of inventory and production) is the sub-specialty within operations research and operations management that is concerned with the design of production/inventory systems to minimize costs: it ...

indicates that maintaining inventories beyond immediate demand can yield advantages by curbing the

bargaining power Bargaining power is the relative ability of parties in a negotiation (such as bargaining, contract writing, or making an agreement) to exert influence over each other in order to achieve favourable terms in an agreement. This power is derived f ...

of suppliers. This strategic action influences the supplier to impose higher prices during initial periods, capitalizing on the heightened demand resulting from building strategic inventories. Subsequently, the supplier competes against these strategic inventories in later periods. Dynamic prices may be a consequence of strategic stock management. Examples of industries known for extensive reliance on strategic inventories include those involved in

fossil fuels A fossil fuel is a flammable carbon compound- or hydrocarbon-containing material formed naturally in the Earth's crust from the buried remains of prehistoric organisms (animals, plants or microplanktons), a process that occurs within geologica ...

and

semiconductors A semiconductor is a material with electrical conductivity between that of a conductor and an insulator. Its conductivity can be modified by adding impurities (" doping") to its crystal structure. When two regions with different doping levels ...

References

{{Improve categories, date=November 2023 Inventory Supply chain management