Designing Supply Chain Backorder Contracts for Customer Retention
AbstractStockout is an unfortunate event for businesses. While prior literature has focused on how to prevent stockouts from occurring, we study how supply chain firms can best react to them by converting a potential lost sale or customer into a retained backorder or customer when they do happen. In particular, we examine how an upstream supply chain firm may use an incentive contract with a downstream firm in an inventory system managed by either the downstream or upstream firm to retain customers in Business-to-Business markets. The upstream firm promises the downstream firm a certain level of compensation ex ante in exchange for efforts by the retailer to convert potential lost sales, due to stockouts, to backorders. The findings show that the inclusion of a backorder incentive contract may change firms’ decision patterns. Significant differences between who manages the inventory in terms of inventory levels, prices to induce retailer backorder efforts, supply chain profits, and their sensitivity to factors such as long-term customer value, are explored and discussed. A contingent effort cost is also considered and the results are presented.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by College of Business, University of Texas at San Antonio in its series Working Papers with number 0038.
Length: 37 pages
Date of creation:
Date of revision:
Vendor Managed Inventory; Retailer Managed Inventory; Business-to-Business Market; Incentive; Backorders; Customer Retention.;
Find related papers by JEL classification:
- C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Lennart Petersson, 2003. "Production Fragmentation And Specialisation, With Special Reference To The Sadc Textile And Clothing Industry," South African Journal of Economics, Economic Society of South Africa, vol. 71(4), pages 762-791, December.
- Gibbon, Peter, 2003. "The African Growth and Opportunity Act and the Global Commodity Chain for Clothing," World Development, Elsevier, vol. 31(11), pages 1809-1827, November.
- David Kaplan, 2004. "Manufacturing in South Africa over the last decade: a review of industrial performance and policy," Development Southern Africa, Taylor & Francis Journals, vol. 21(4), pages 623-644.
- Simon Roberts & John Thoburn, 2003. "Adjusting to Trade Liberalisation: The Case of Firms in the South African Textile Sector," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 12(1), pages 74-103, March.
- Aaditya Mattoo & Devesh Roy & Arvind Subramanian, 2003.
"The Africa Growth and Opportunity Act and its Rules of Origin: Generosity Undermined?,"
The World Economy,
Wiley Blackwell, vol. 26(6), pages 829-851, 06.
- Mattoo, Aaditya & Roy, Devesh & Subramanian, Arvind, 2002. "The Africa Growth and Opportunity Act and its rules of origin : generosity undermined?," Policy Research Working Paper Series 2908, The World Bank.
- Arvind Subramanian & Aaditya Mattoo & Devesh Roy, 2002. "The Africa Growth and Opportunity Act and Its Rules of Origin: Generosity Undermined?," IMF Working Papers 02/158, International Monetary Fund.
- Christensen, Laurits R & Jorgenson, Dale W & Lau, Lawrence J, 1973. "Transcendental Logarithmic Production Frontiers," The Review of Economics and Statistics, MIT Press, vol. 55(1), pages 28-45, February.
- Barten, A. P., 1969. "Maximum likelihood estimation of a complete system of demand equations," European Economic Review, Elsevier, vol. 1(1), pages 7-73.
- Denis Audet, 2007. "Smooth as Silk? A First Look at the Post MFA Textiles and Clothing Landscape," Journal of International Economic Law, Oxford University Press, vol. 10(2), pages 267-284, June.
- Christensen, Laurits R & Greene, William H, 1976. "Economies of Scale in U.S. Electric Power Generation," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 655-76, August.
- Tybout, James R. & Westbrook, M. Daniel, 1995. "Trade liberalization and the dimensions of efficiency change in Mexican manufacturing industries," Journal of International Economics, Elsevier, vol. 39(1-2), pages 53-78, August.
- Wales, Terence J., 1977. "On the flexibility of flexible functional forms : An empirical approach," Journal of Econometrics, Elsevier, vol. 5(2), pages 183-193, March.
- Simon Roberts & John T. Thoburn, 2004. "Globalization and the South African textiles industry: impacts on firms and workers," Journal of International Development, John Wiley & Sons, Ltd., vol. 16(1), pages 125-139.
- Caves, Douglas W & Christensen, Laurits R, 1980. "Global Properties of Flexible Functional Forms," American Economic Review, American Economic Association, vol. 70(3), pages 422-32, June.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Eddie Salinas).
If references are entirely missing, you can add them using this form.