Decentralized Decision-Making in Retail Chains: Evidence from Inventory Management

Victor Aguirregabiria () and Francis Guiton

No 17149, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper investigates the impact of decentralizing inventory decision-making in multi-establishment firms using data from a large retail chain. Analyzing two years of daily data, we find significant heterogeneity among the inventory decisions made by 634 store managers. By estimating a dynamic structural model, we reveal substantial heterogeneity in managers’ perceived costs. Moreover, we observe a correlation between the variance of these perceptions and managers’ education and experience. Counterfactual experiments show that centralized inventory management reduces costs by eliminating the impact of managers’ skill heterogeneity. However, these benefits are offset by the negative impact of delayed demand information.

Keywords: Inventory management; Dynamic structural models; Decentralization; Information processing in organizations; Retail chains; Managerial skills; Store managers (search for similar items in EconPapers)
JEL-codes: D22 D84 L22 L81 (search for similar items in EconPapers)
Date: 2022-03
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Working Paper: Decentralized Decision-Making in Retail Chains: Evidence from Inventory Management (2023)
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