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Setting the right incentives for global planning and operations

Author

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  • Norde, Henk
  • Özen, Ulaş
  • Slikker, Marco

Abstract

We study incentive issues seen in a firm performing global planning and manufacturing, and local demand management. The stochastic demands in local markets are best observed by the regional business units, and the firm relies on the business units’ forecasts for planning of global manufacturing operations. We propose a class of performance evaluation schemes that induce the business units to reveal their private demand information truthfully by turning the business units’ demand revelation game into a potential game with truth telling being a potential maximizer, an appealing refinement of Nash equilibrium. Moreover, these cooperative performance evaluation schemes satisfy several essential fairness notions. After analyzing the characteristics of several performance evaluation schemes in this class, we extend our analysis to include the impact of effort on demand.

Suggested Citation

  • Norde, Henk & Özen, Ulaş & Slikker, Marco, 2016. "Setting the right incentives for global planning and operations," European Journal of Operational Research, Elsevier, vol. 253(2), pages 441-455.
    • Handle: RePEc:eee:ejores:v:253:y:2016:i:2:p:441-455
    DOI: 10.1016/j.ejor.2016.02.029
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    Cited by:

    1. Cai, W. & Singham, D.I., 2018. "A principal–agent problem with heterogeneous demand distributions for a carbon capture and storage system," European Journal of Operational Research, Elsevier, vol. 264(1), pages 239-256.
    2. Spiliotopoulou, Eirini & Donohue, Karen & Gürbüz, Mustafa Çagri & Heese, H. Sebastian, 2018. "Managing and reallocating inventory across two markets with local information," European Journal of Operational Research, Elsevier, vol. 266(2), pages 531-542.

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