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Quick Response Under Strategic Manufacturer

Jiguang Chen (), Qiying Hu (), Duo Shi () and Fuqiang Zhang ()
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Jiguang Chen: School of Management, Xiamen University, Xiamen, Fujian 361005, China; Center for Accounting Studies, Xiamen University, Xiamen, Fujian 361005, China
Qiying Hu: School of Management, Fudan University, Shanghai 200433, China
Duo Shi: School of Management and Economics, The Chinese University of Hong Kong, Shenzhen, Shenzhen, Guangdong 518172, China; Shenzhen Finance Institute, Shenzhen, Guangdong 518000, China
Fuqiang Zhang: Olin Business School, Washington University in St. Louis, St. Louis, Missouri 63130

Manufacturing & Service Operations Management, 2024, vol. 26, issue 1, 312-329

Abstract: Problem definition : Quick response is a classic operations strategy that allows a retailer to place a rapid replenishment order during the selling season using information learned from early sales. The benefits of quick response are widely studied in the literature under the condition that the manufacturer’s wholesale prices are exogenously given. Motivated by the practice of emerging small and medium-sized enterprise (SME) fashion brands, this paper revisits the value of quick response for a retailer when a manufacturer can strategically set its wholesale prices. Methodology/results : We develop a game-theoretic model consisting of one manufacturer and one retailer. In contrast to the traditional quick response setting, the manufacturer can dynamically adjust wholesale prices for both regular and replenishment orders. First, we investigate whether and when quick response still benefits the retailer. We find that, under low or significantly high demand uncertainties, the firms share a common preferred ordering strategy, and quick response benefits the retailer as well as the supply chain. But, under moderately high demand uncertainty, the retailer’s favored ordering strategy conflicts with the manufacturer’s interest; as a result, the manufacturer would set wholesale prices to counter the retailer’s ordering strategy, which makes quick response detrimental to the retailer. Second, we search for mechanisms that can resolve this conflict and restore the beneficial effect of quick response. We show that letting the manufacturer commit to wholesale prices up front is ineffective in fixing the problem. However, if the retailer can propose a take-it-or-leave-it wholesale price for the replenishment order (possibly with the replenishment quantity) once the regular wholesale price is set, then quick response leads to a win–win outcome for both firms. Managerial implications : The findings caution retailers with weak power (e.g., SMEs) when adopting quick response, especially when facing moderately high demand uncertainties. The retailer, although weak, should be aware of the retailer’s natural ability to propose replenishment terms because, otherwise, the retailer can always forgo quick response; this opens up an opportunity to design more favorable arrangements.

Keywords: quick response; supply chain; strategic inventory; demand learning; SME fashion retailer (search for similar items in EconPapers)
Date: 2024
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