Store Incentives and Retailer Inventory Performance under Asymmetric Demand Information and Unobservable Lost Sales*

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dc.contributor.authorAlp, Osman
dc.contributor.authorSen, Alper
dc.date.accessioned2017-03-22T18:17:05Z
dc.date.available2017-03-22T18:17:05Z
dc.date.issued2017
dc.descriptionWorking paper. Please do not cite without the consent of authors.
dc.description.abstractWe study incentive issues in an inventory management setting in which high on-shelf availability is crucial. Headquarters of a retailer delegates inventory replenishment decisions to store managers in its various stores. Store manager has complete information of the local demand process, whereas headquarters has partial information and cannot observe unsatisfied demand. The problem is how to incentivize the manager to make an order quantity decision that minimizes the sum of headquarters’ expected overage and underage costs. We propose two incentive schemes that explicitly incorporate excess inventory and stock-outs into the store manager’s performance measurement.We prove that a perfect alignment of incentives is possible under certain conditions. Interestingly, perfect or near-perfect alignment requires the stock-out inspection before the end of the replenishment cycle. We validate our approach and assumptions on a retailer’s actual data and show that the retailer may improve its profitability by using the proposed incentive scheme.en_US
dc.description.refereedNoen_US
dc.identifier.citationAlp, O. and Sen. A. (2017). Store Incentives and Retailer Inventory Performance under Asymmetric Demand Information and Unobservable Lost Sales. Working Paper.en_US
dc.identifier.doihttp://dx.doi.org/10.11575/PRISM/34137
dc.identifier.issn0025-1909
dc.identifier.urihttp://hdl.handle.net/1880/51883
dc.language.isoenen_US
dc.publisher.departmentOperations and Supply Change Managementen_US
dc.publisher.facultyHaskayne School of Businessen_US
dc.publisher.hasversionPre-print
dc.publisher.institutionUniversity of Calgaryen_US
dc.publisher.urlhttp://pubsonline.informs.org/journal/mnscen_US
dc.subjectIncentive alignmenten_US
dc.subjectUnobservable shortagesen_US
dc.subjectAsymmetric informationen_US
dc.titleStore Incentives and Retailer Inventory Performance under Asymmetric Demand Information and Unobservable Lost Sales*en_US
dc.typejournal article
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