Optimal inventory policies in decentralized supply chains

This paper studies the inventory behavior of autonomous and self-serving firms in a decentralized retailer-manufacturer serial supply chain. We first analytically characterize the optimal inventory policies for each firm both with and without information sharing, revealing an inherent simple structure of optimal inventory behavior: replenishments are triggered by ultimate customer demand directly. We then consider various extensions: (1) N-stage serial systems, (2) batch ordering policies, (3) fixed setup costs, and (4) Markovian customer demand.