We studied an inventory control strategy in a capacity-constrained supply chain with access to spot markets. Due to the high variability in supply and demand, supply chain managers are required to keep enough stock to serve immediate demand while retaining the total stock below the storage capacity. When the supply-demand discrepancy is high, the manager may decide to buy/sell some stocks from/to spot markets with additional cost to maintain the desired service level to customers. This study aims to develop a control strategy to make inventory decisions in the presence of spot markets. We present a case study in the chemical supply chain and develop two scenarios to solve the problem. By using simulation, we show that substantial benefits can be achieved by considering the spot market feature for inventory decisions. The results suggest that access to spot markets not only can help to relieve capacity constraints in the supply chain but also reduce the total logistics cost while maintaining a high service level. The control strategy derived from this study can also be further developed to create an intelligent automatic spot trading in the related supply chain environments.
