IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Centralization of Stocks: Retailers vs. Manufacturer

  • Ravi Anupindi

    (Kellogg Graduate School of Management, Northwestern University, Evanston, Illinois 60208)

  • Yehuda Bassok

    (School of Business Administration, Department of Management Science, University of Washington, Seattle, Washington 98195)

Registered author(s):

    A well-known result in inventory theory is that physical centralization of stocks in a system with multiple retailers decreases total costs and increases total profits for the retailers. However, does this centralization also benefit the manufacturer, whose goods the retailers stock, when customers unsatisfied at retailers due to stock-outs are considered lost sales? In this paper we consider a model with two retailers and one manufacturer. We then compare two systems: one in which the retailers hold stocks separately and the other in which they cooperate to centralize stocks at a single location. We show that whether or not centralization of stocks by retailers increases profits for the manufacturer depends on the level of "market search" in the supply chain. Market search is measured as the fraction of customers who, unsatisfied at their "local" retailer due to a stock-out, search for the good at the other retailer before leaving the system. Specifically, we show that there exists a threshold level for market search above which the manufacturer loses. Furthermore, for "very high" search levels, even the system profit (sum of manufacturer and retailer profits) may decrease upon centralization. We then compare the performance of the two systems under optimal pricing/subsidy mechanisms and show that often a manufacturer is better off in a decentralized system with high market search. We conclude with a discussion of the role of information systems in the decentralized systems.

    If 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.

    File URL: http://dx.doi.org/10.1287/mnsc.45.2.178
    Download Restriction: no

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 45 (1999)
    Issue (Month): 2 (February)
    Pages: 178-191

    as
    in new window

    Handle: RePEc:inm:ormnsc:v:45:y:1999:i:2:p:178-191
    Contact details of provider: Postal: 7240 Parkway Drive, Suite 300, Hanover, MD 21076 USA
    Phone: +1-443-757-3500
    Fax: 443-757-3515
    Web page: http://www.informs.org/
    Email:


    More information through EDIRC

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:45:y:1999:i:2:p:178-191. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.