An analytical investigation of inflation’s effects on supply chain strategies

Inflation poses significant challenges to supply chain operations by raising procurement and operational costs, dampening customer demand, and complicating decision-making for suppliers and retailers. This study investigates the optimization of supply chain strategies under inflationary pressures, addressing the inadequacy of traditional ordering and pricing approaches. We model a supply chain comprising one supplier and two retailers exposed to inflation-driven price volatility. Using an analytical optimization framework, eight scenarios are evaluated based in retailers’ adoption of hedging strategies through option contracts versus optimal order quantity strategies, while considering lead time dynamics and retailer competition. The results indicate that inflation profoundly influences optimal order quantities, supplier capacity, and the profitability of all supply chain participants. Full collaboration yields profit growth exceeding 1900 % compared to non-cooperative settings, whereas partial collaboration still results in gains of more than 25 %. Conversely, the least efficient scenarios incur profit losses of up to 95 %, highlighting the substantial penalty of insufficient coordination. Notably, the joint adoption of hedging strategies by both retailers yields the highest supply chain profit, particularly in environments characterized by longer lead times or elevated inflation rates. Hedging enables retailers to stabilize prices, sustain customer demand, and shield customers from inflation’s adverse effects. Furthermore, collaboration among retailers enhances overall supply chain resilience. This research offers actionable insights for practitioners aiming to aiming mitigate inflationary risks, emphasizing the essential roles of analytical planning, hedging, and coordination in supply chain management under inflationary conditions.