Managing supply chain backorders under vendor managed inventory: An incentive approach and empirical analysis

Yuliang Yao, Yan Dong and Martin Dresner

European Journal of Operational Research, 2010, vol. 203, issue 2, 350-359

Abstract: This paper shows how a manufacturer may use an incentive contract with a distributor under a VMI arrangement to gain market share. The manufacturer promises a distributor lower inventory levels in exchange for efforts by the distributor to convert potential lost sales due to stockouts to backorders. Data gathered from a third party provider of information services are then used to illustrate that this incentive arrangement may, at least implicitly, be employed in industry. Our data estimations show that when a manufacturer and distributor are operating under a VMI arrangement, lower inventory at the distributor is associated with a higher conversion rate of lost sales stockouts to backorders.

Keywords: Vendor; managed; inventory; Incentive; Empirical; analysis; Supply; contracts (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:203:y:2010:i:2:p:350-359

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