The paper develops a simple theoretical model of inventory control in global supply chains. It identifies a role for … intermediaries in managing inventory, and shows that inserting an intermediary as an additional link in a supply chain is profitable … when demand volatility is high. It also provides conditions under which the intermediary handling inventory is located in …

costs of ordering firms hold an inventory of intermediates. We show that in response to an uncertainty shock firms optimally … adjust their inventory policy by cutting their orders of foreign intermediates disproportionately strongly. In the aggregate …