Inventory Dynamics and Supply Chain Coordination

Harish Krishnan () and Ralph Winter ()
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Harish Krishnan: Sauder School of Business, University of British Columbia, Vancouver, British Columbia V6T 1Z2, Canada

Management Science, 2010, vol. 56, issue 1, 141-147

Abstract: This paper extends the theory of supply chain incentive contracts from the static newsvendor framework of the existing literature to the simplest dynamic setting. A manufacturer distributes a product through retailers who compete on both price and fill rates. We show that inventory durability is the key factor in determining the underlying nature of incentive distortions and their contractual resolutions. When the product is highly perishable, retailers are biased toward excessive price competition and inadequate inventories. Vertical price floors or inventory buybacks (subsidies for unsold inventory) can coordinate incentives in both pricing and inventory decisions. When the product is less perishable, the distortion is reversed and vertical price ceilings or inventory penalties can coordinate incentives.

Keywords: supply chain coordination; inventory dynamics; price and inventory competition; contracts (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (21)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:56:y:2010:i:1:p:141-147

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