Reducing Product Expiration by Aligning Salesforce Incentives: A Data‐driven Approach

Arzum Akkaş and Nachiketa Sahoo

Production and Operations Management, 2020, vol. 29, issue 8, 1992-2009

Abstract: Product expirations at retail stores erode profits and burden the environment. We investigate whether manufacturers can leverage salesforce compensation design as a waste‐reduction tool. We propose a data‐driven framework that uses structural econometric modeling and agency theory. Our analysis starts with a game theoretic model in which a salesperson interacts with a manufacturer that reimburses retailers and penalizes its own salesforce for expired products. We then use our model’s equilibrium outcome to estimate factors that determine the effort exerted by the sales representatives of a consumer‐packaged‐goods manufacturer. We first show theoretically that a manufacturer can simultaneously increase profits and reduce waste by increasing its sales representatives’ penalty for product expiration that occurs at the retailer. Based on this, we formulate a manufacturer’s profit maximization problem to compute optimum expiration penalties. Solving this problem for the manufacturer, we find the potential to simultaneously reduce waste and improve profits for 14% of the product–market combinations in our dataset. For these cases, we find that charging the salesperson 2.1 times the commission (on average) for each expired unit can increase the manufacturer’s profits by 0.58% and reduce waste by 23.3%. This study determines that a profit‐seeking manufacturer can reduce waste at retailers by optimizing its salesforce incentive structure. Our work bridges the salesforce compensation and sustainable operations literatures. Furthermore, our framework allows consumer‐packaged‐goods manufacturers to identify win‐win opportunities for the environment and their bottom line.

Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://doi.org/10.1111/poms.13191

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:popmgt:v:29:y:2020:i:8:p:1992-2009

Ordering information: This journal article can be ordered from
http://onlinelibrary ... 1111/(ISSN)1937-5956

Access Statistics for this article

Production and Operations Management is currently edited by Kalyan Singhal

More articles in Production and Operations Management from Production and Operations Management Society
Bibliographic data for series maintained by Wiley Content Delivery ().