The Impact of Trust on Inventory Replenishment Decision and Extended Inventory

Trust has a substantial impact in supply chain relationships. While the effect of trust on supply chain performance has been extensively studied, relatively little is known about the link between trust, inventory replenishment decision-making, and inventory behavior. This paper examines the impact of inventory manager’ trust perception on their replenishment decision and their extended inventory. We design an experiment with unknown market demand, local information, and under continuous replenishment review. We analyze the experimental data on the individual and echelon levels. We find that lower trust in customer leads to higher order quantity, lengthen order time intervals, and higher extended inventory at the individual levels. Results at the echelon level also show some supports. Moreover, our results show that inventory managers prefer to hold higher inventory level when they have lower trust in their upstream supplier. We find that distributor exhibits the lowest trust in customer, highest order quantity and longest order time intervals among echelons. Furthermore, we find that retailer is the only echelon that considers trust in supplier while placing order quantities to upstream supplier.