Monitoring the market or the salesperson? The value of information in a multilayer supply chain

Kung, Ling-Chieh; Chen, Ying‐Ju

doi:10.1002/nav.20480

Cited by 9 publications

(9 citation statements)

References 30 publications

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“…Unlike these two papers, in this study, we focus on asymmetric demand information rather than cost information. Under a three‐layer setting similar to the one adopted in this study, compares the benefits for a manufacturer to indirectly resolve the adverse selection and moral hazard problems through a reseller. Although they consider only the restricted case in which the indirect monitoring is assumed to all‐or‐nothing, we relax the assumption and show that the optimal indirect monitoring is indeed all‐or‐nothing.…”

Section: Introductionmentioning

confidence: 99%

Impact of reseller's and sales agent's forecasting accuracy in a multilayer supply chain

Kung

Chen

2014

Naval Research Logistics

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We consider a three‐layer supply chain with a manufacturer, a reseller, and a sales agent. The demand is stochastically determined by the random market condition and the sales agent's private effort level. Although the manufacturer is uninformed about the market condition, the reseller and the sales agent conduct demand forecasting and generate private demand signals. Under this framework with two levels of adverse selection intertwined with moral hazard, we study the impact of the reseller's and the sales agent's forecasting accuracy on the profitability of each member. We show that the manufacturer's profitability is convex on the reseller's forecasting accuracy. From the manufacturer's perspective, typically improving the reseller's accuracy is detrimental when the accuracy is low but is beneficial when it is high. We identify the concrete interrelation among the manufacturer‐optimal reseller's accuracy, the volatility of the market condition, and the sales agent's accuracy. Finally, the manufacturer's interest may be aligned with the reseller's when only the reseller can choose her accuracy; this alignment is never possible when both downstream players have the discretion to choose their accuracy. © 2014 Wiley Periodicals, Inc. Naval Research Logistics 61: 207–222, 2014

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Section: Introductionmentioning

confidence: 99%

Impact of reseller's and sales agent's forecasting accuracy in a multilayer supply chain

Kung

Chen

2014

Naval Research Logistics

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“…Sales compensation plans, their strategies relating to pricing and production/order have attracted much attention as the historic models were based on risk neutrality, where decision makers made decisions to maximize their expected profits. In the last decade, researchers adopted risk-averse models for supply chain management, to reflect the risk preferences in decision making, in order to represent more realistic settings (see [5], [8], [14], [15], [16], [22]). In these models, the risk attitude is usually modeled as a parameter in the utility function, and it is assumed to be common knowledge (see [5], [22]).…”

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confidence: 99%

“…These studies are based on full information. Many researchers studied the compensation incentives to induce a sales agent to disclose what he knows about the hidden cost (see [3], [6], [13], [19], [25]), hidden market condition (see [5], [14], [15], [22]), or hidden demand (see [16]). Gonik [10] reported a clever scheme under which it is in the salespeople's interest to forecast accurately and to work hard.…”

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confidence: 99%

“…Chen [5] investigated how a firm can provide incentives to its salesforce so that it is in their interest to truthfully disclose their information about the market and to work hard. Kung and Chen [14] studied a three-layer supply chain in which a manufacturer relies on a salesperson to sell the products to the consumers, and jointly study the manufacturer's partner selection problem and the resellers' salesforce compensation problem. The sales outcome is determined by a random market condition and the salesperson's service level, both of which are privately observed by the salesperson.…”

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Compensation plan, pricing and production decisions with inventory-dependent salvage value, and asymmetric risk-averse sales agent

Chen¹,

Wang²,

Huang³

et al. 2018

Journal of Industrial &Amp; Management Optimization

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In this paper, we investigate the joint decision on production and pricing, and the compensation strategy of a supply chain, where the manufacturer relies on a risk-averse sales agent to sell the products. The sales outcome is determined by the sales agent's selling effort and the product price. Most of the previous research about salesforce assumes that the risk attitude to an agent is known to each other and the salvage value is a constant. In this study, we have considered that the salvage value is a function of inventory, and both of the sales agent's selling effort and risk attitude are their private information on the general framework of dual information asymmetric. With the help of revelation principle and principal-agent theory, we have been able to derive the optimal compensation contracts, and joint decision on production and pricing for the manufacturer. Analyzing them and comparing to the symmetric scenario, we found that only the optimal production strategy and the manufacturer's profit depended on the variation rate of salvage value. When the manufacturer comes across asymmetric risk-averse sales agents its profit decreases, whereas the sales agent with private information obtains higher income but exerts less effort, which implies the value of information. The results also mean that the manufacturer should not only focus on offering a lower commission rate to the more risk-averse sales agent, but also on screening his risk information.

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“…Eq. (24) indicates that the unit net salvage value s and unit emergency production cost c only affect the manufacturer's production quantity Q * (k) and her expected profit E * k (Π M ). It is easy to verify that the manufacturer's expected profit E * k (Π M ) is strictly increasing in c and s , which is consistent with Eq.(11).…”

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confidence: 99%

Salesforce contract design, joint pricing and production planning with asymmetric overconfidence sales agent

Chen¹,

Wang²,

Huang³

et al. 2017

Journal of Industrial &Amp; Management Optimization

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We study a supply chain in which a rational manufacturer relies on an overconfident sales agent to sell the products. The actual sales outcome is determined by the sales agent's selling effort, the product price and a random market condition, and the sales agent is overconfident in their estimation of sales outcome. Apart from them, both of the sales agent's degree of overconfidence and selling effort are his private information. We consider the salesforce incentive to motivate the sales agent and screen his real degree of overconfidence using a principle-agent method under dual information asymmetry, then the manufacturer uses the information to realize her joint decision on pricing and production. Furthermore, we derive the optimal compensation contract as well as the optimal pricing and production, and compare it to the symmetric overconfidence scenario. Finally, some interesting insights are found: when the manufacturer is uncertain about the sales agent's the degree of overconfidence, her expected profit decreases while the sales agent with private information exerts less effort but obtains higher income, which implies the value of information; the manufacturer should hire a more overconfident sales agent, while a higher commission rate is not guaranteed. These results suggest that the manufacturer should not only focus on hiring the overconfident sales agent but also on disclosing the degree of overconfidence.

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Monitoring the market or the salesperson? The value of information in a multilayer supply chain

Cited by 9 publications

References 30 publications

Impact of reseller's and sales agent's forecasting accuracy in a multilayer supply chain

Impact of reseller's and sales agent's forecasting accuracy in a multilayer supply chain

Compensation plan, pricing and production decisions with inventory-dependent salvage value, and asymmetric risk-averse sales agent

Salesforce contract design, joint pricing and production planning with asymmetric overconfidence sales agent

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