Supply Chain Coordination when Demand Is Shelf-Space Dependent

Wang, Yunzeng; Gerchak, Yigal

doi:10.1287/msom.3.1.82.9998

Cited by 161 publications

(83 citation statements)

References 3 publications

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“…Large inventory by itself might have a stimulating e®ect on the customers. Car dealers, for example, usually place all their inventory in a parking lot in front of the dealership to attract customers' attention (see Wang and Gerchak [33] for other examples and numerous references).…”

Section: Model Iv: Nonlinear Back-ordering Rulementioning

confidence: 99%

Inventory competition and incentives to back-order

Netessine¹,

Rudi²,

Wang³

2006

IIE Transactions

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In this paper we consider the issue of inventory control in a multi-period environment with competition on product availability. Specifically, when a product is out of stock, the customer often must choose between placing a back-order or turning to a competitor selling a similar product. We consider a competition in which customers may switch between two retailers (substitute) in the case of a stock-out at the retailer of their first choice. In a multi-period setting, the following four situations may arise if the product is out of stock: (i) sales may be lost; (ii) customers may back-order the product with their first-choice retailer; (iii) customers may back-order the product with their second-choice retailer; or (iv) customers may attempt to acquire the product according to some other more complex rule. The question we address is: how do the equilibrium stocking quantities and profits of the retailers depend on the customers' back-ordering behaviors? In this work we consider the four alternative back-ordering scenarios and formulate each problem as a stochastic multiperiod game. Under appropriate conditions, we show that a stationary base-stock inventory policy is a Nash equilibrium of the game that can be found by considering an appropriate static game. We derive conditions for the existence and uniqueness of such a policy and conduct a comparative statics analysis. Analytical expressions for the optimality conditions facilitate managerial insights into the effects of various back-ordering mechanisms. Furthermore, we recognize that often a retailer is willing to offer a monetary incentive to induce a customer to back-order instead of going to the competitor. Therefore, it is necessary to coordinate incentive decisions with operational decisions about inventory control. We analyze the impact of incentives to backorder the product on the optimal stocking policies under competition and determine the conditions that guarantee monotonicity of the equilibrium inventory in the amount of the incentive offered. Our analysis also suggests that, counterintuitively, companies might benefit from making their inventories "visible" to competitors' customers, since doing so reduces the level of competition, decreases optimal inventories and simultaneously increases profits for both players. In this paper we consider the issue of inventory control in a multi-period environment with competition on product availability. Speci¯cally, when a product is out of stock, the customer often must choose between placing a back order or turning to a competitor selling a similar product. We consider a competition in which customers may switch between two retailers (substitute) in the case of a stock-out at the retailer of their¯rst choice. In a multi-period setting, the following four situations may arise if the product is out of stock: sales may be lost; customers may back-order the product with their¯rst-choice retailer; customers may back-order the product with their second-choice retailer; or customers may attempt to acquire t...

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Section: Model Iv: Nonlinear Back-ordering Rulementioning

confidence: 99%

Inventory competition and incentives to back-order

Netessine¹,

Rudi²,

Wang³

2006

IIE Transactions

Self Cite

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“…For example, Baker and Urban (1988), Datta and Pal (1990), Gerchak and Wang (1994), Balakrishnan et al (2000), and Wang and Gerchak (2001) develop static inventory-control models in which it is assumed that demand is an increasing function of the firm's inventory level; Eilon (1965), Caine and Plaut (1976), Ernst and Cohen (1992), and Ernst and Powell (1995) specify similar models in which the firm's service level affects the distribution of demand. Dynamic models in which future demand depends on consumers' past experience with stockouts include Schwartz (1966, 1970), Fergani (1976, and Robinson (1988).…”

Section: Introductionmentioning

confidence: 99%

Note: The Newsvendor Model with Endogenous Demand

2001

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T his paper considers a firm's price and inventory policy when it faces uncertain demand that depends on both price and inventory level. The authors extend the classic newsvendor model by assuming that expected utility maximizing consumers choose between visiting the firm and consuming an exogenous outside option. The outside option represents the utility the consumer forgoes when she chooses to visit the firm before knowing whether or not the product will be available. The authors investigate both the case in which the firm's price is exogenous and the case in which price is chosen optimally. The paper makes two contributions. First, the authors show that the firm holds more inventories, provides a higher fill rate, attracts more customers, and earns higher profits when it internalizes the effect of its inventory on demand. Second, the authors show that in the endogenous price case the firm's two-dimensional decision problem can be reduced to two, sequential, single-variable optimizations. As a result, the endogenous-price case is as easy to solve as the exogenousprice case.

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“…The studies of Lippman and McCardle (1997), Gerchak (2001), andCachon (2003) are examples of such models. Cachon's (2003) work has interesting analogies with our work.…”

Section: Related Literaturementioning

confidence: 99%

Value of supplier’s capacity information in a two-echelon supply chain

2011

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In traditional supply chain models it is generally assumed that full information is available to all parties involved. Although this seems reasonable, there are cases where chain members are independent agents and possess different levels of information. In this study, we analyze a two-echelon, single supplier-multiple retailers supply chain in a single-period setting where the capacity of the supplier is limited. Embedding the lack of information about the capacity of the supplier in the model, we aim to analyze the reaction of the retailers, compare it with the full-information case, and assess the value of information and the effects of information asymmetry using game theoretic analysis. In our numerical studies, we conclude that the value of information is highly dependent on the capacity conditions and estimates of the retailers, and having information is not necessarily beneficial to the retailers.

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Supply Chain Coordination when Demand Is Shelf-Space Dependent

Cited by 161 publications

References 3 publications

Inventory competition and incentives to back-order

Inventory competition and incentives to back-order

Note: The Newsvendor Model with Endogenous Demand

Value of supplier’s capacity information in a two-echelon supply chain

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