Procurement Strategies with Inventory Swapping and Spot Market Under Demand Uncertainty

Demand uncertainty and supply imbalances pose persistent challenges for procurement decisions. In practice, firms often mitigate such mismatches through inventory swapping and spot market procurement. Motivated by this observation, this paper develops a procurement model that integrates long-term wholesale procurement, ex-post inventory swapping, and spot-market sourcing within a unified framework. While prior studies have largely examined spot-market procurement and inventory swapping separately, little attention has been paid to how these two mechanisms jointly mitigate demand uncertainty. The analysis yields three main findings. First, inventory swapping remains economically valuable even when spot-market procurement is available, indicating that the two mechanisms are not pure substitutes. Second, the economic value of inventory swapping increases with higher spot-market prices and greater demand volatility, as reallocating existing inventory becomes more cost-effective than emergency spot-market procurement. Third, the impact of the partner buyer’s order quantity depends critically on the swap transfer price, with lower transfer prices strengthening the value of inventory swapping. These findings contribute to the procurement and supply flexibility literature by clarifying how multiple procurement channels interact under demand uncertainty. The study also provides managerial implications for designing procurement systems that integrate inventory swapping with spot-market procurement.