IDEAS home Printed from
   My bibliography  Save this article

Effect of Supply Reliability in a Retail Setting with Joint Marketing and Inventory Decisions


  • Shaoxuan Liu

    () (Antai College of Economics and Management, Shanghai Jiao Tong University, Shanghai 200052, China)

  • Kut C. So

    () (Paul Merage School of Business, University of California, Irvine, California 92697)

  • Fuqiang Zhang

    () (Olin Business School, Washington University in St. Louis, St. Louis, Missouri 63130)


This paper studies the impact of supply reliability on a retail firm's performance under joint marketing and inventory decisions. The firm sells a product in a single selling season and can exert marketing effort to influence consumer demand. We develop a modeling framework to quantify the value of improving supply reliability and investigate how this value depends on different model parameters. Our results provide useful insights into how firms should make investment decisions on adopting new technologies to improve supply reliability. First, we establish a necessary and sufficient condition under which the maximum unit cost a firm is willing to pay to improve supply reliability increases in product price. We further show that this condition would hold in most practical situations. Thus, with some caveats, our result supports the intuition that a firm is willing to pay more to improve supply reliability for products with a higher price. Next, we show that for two products with the same price, a firm is willing to pay more to improve supply reliability for the product with a higher product cost. This implies that it is not necessarily true that emerging technologies for improving supply reliability should be first adopted for products with the highest unit contribution margin. Finally, we show that a product with a lower marketing cost function always benefits more from improved supply reliability than a product with a higher marketing cost function. This finding suggests that the priority of adopting new technologies should be given to situations where the firm can effectively induce greater demand through promotional effort.

Suggested Citation

  • Shaoxuan Liu & Kut C. So & Fuqiang Zhang, 2010. "Effect of Supply Reliability in a Retail Setting with Joint Marketing and Inventory Decisions," Manufacturing & Service Operations Management, INFORMS, vol. 12(1), pages 19-32, March.
  • Handle: RePEc:inm:ormsom:v:12:y:2010:i:1:p:19-32

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Ram C. Rao, 1990. "Compensating Heterogeneous Salesforces: Some Explicit Solutions," Marketing Science, INFORMS, vol. 9(4), pages 319-341.
    2. Harish Krishnan & Roman Kapuscinski & David A. Butz, 2004. "Coordinating Contracts for Decentralized Supply Chains with Retailer Promotional Effort," Management Science, INFORMS, vol. 50(1), pages 48-63, January.
    3. Teck H. Ho & Christopher S. Tang, 2004. "Introduction to the Special Issue on Marketing and Operations Management Interfaces and Coordination," Management Science, INFORMS, vol. 50(4), pages 429-430, April.
    4. Jing-Sheng Song, 1994. "The Effect of Leadtime Uncertainty in a Simple Stochastic Inventory Model," Management Science, INFORMS, vol. 40(5), pages 603-613, May.
    5. Nicole DeHoratius & Ananth Raman, 2008. "Inventory Record Inaccuracy: An Empirical Analysis," Management Science, INFORMS, vol. 54(4), pages 627-641, April.
    6. Paul Zipkin, 2006. "OM ForumThe Best Things in Life Were Free: On the Technology of Transactions," Manufacturing & Service Operations Management, INFORMS, vol. 8(4), pages 321-329, October.
    7. Kevin B. Hendricks & Vinod R. Singhal, 2005. "Association Between Supply Chain Glitches and Operating Performance," Management Science, INFORMS, vol. 51(5), pages 695-711, May.
    8. Terry A. Taylor, 2002. "Supply Chain Coordination Under Channel Rebates with Sales Effort Effects," Management Science, INFORMS, vol. 48(8), pages 992-1007, August.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Kök, A. Gürhan & Shang, Kevin H., 2014. "Evaluation of cycle-count policies for supply chains with inventory inaccuracy and implications on RFID investments," European Journal of Operational Research, Elsevier, vol. 237(1), pages 91-105.
    2. Dai, Jiansheng & Meng, Weidong, 2015. "A risk-averse newsvendor model under marketing-dependency and price-dependency," International Journal of Production Economics, Elsevier, vol. 160(C), pages 220-229.
    3. Xu, Minghui & Lu, Ye, 2013. "The effect of supply uncertainty in price-setting newsvendor models," European Journal of Operational Research, Elsevier, vol. 227(3), pages 423-433.
    4. repec:gam:jsusta:v:9:y:2017:i:12:p:2261-:d:122077 is not listed on IDEAS
    5. Yeo, Wee Meng & Yuan, Xue-Ming, 2011. "Optimal inventory policy with supply uncertainty and demand cancellation," European Journal of Operational Research, Elsevier, vol. 211(1), pages 26-34, May.
    6. repec:spr:annopr:v:257:y:2017:i:1:d:10.1007_s10479-015-1888-3 is not listed on IDEAS


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormsom:v:12:y:2010:i:1:p:19-32. 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). General contact details of provider: .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.