Inventory Record Inaccuracy,Double Marginalization,and RFID Adoption

Most retailers suffer from substantial discrepancies between inventory quantities recorded in the system and stocks truly available to customers. Promising full inventory transparency, radio frequency identification (RFID) technology has often been suggested as a remedy to the problem. We consider inventory record inaccuracy in a supply chain model, where a Stackelberg manufacturer sets the wholesale price and a retailer determines how much to stock for sale to customers. We first analyze the impact of inventory record inaccuracy on optimal stocking decisions and profits. By contrasting optimal decisions in a decentralized supply chain with those in an integrated supply chain, we find that inventory record inaccuracy exacerbates the inefficiencies resulting from double marginalization in decentralized supply chains. Assuming RFID technology can eliminate the problem of inventory record inaccuracy, we determine the cost thresholds at which RFID adoption becomes profitable. We show that a decentralized supply chain benefits more from RFID technology, such that RFID adoption improves supply chain coordination.     

Managing the Reverse Channel with RFID‐Enabled Negative Demand Information

We analyze the inventory decisions of a manufacturer who has ample production capacity and also uses returned products to satisfy customer demand. All returned items go through an evaluation process, at the end of which the decision of disposal, direct reselling, or rework is made for each unit according to a predetermined procedure. We quantify the value of information/visibility on the reverse channel for the manufacturer by making comparisons among three approaches: No information‐naive; no visibility‐enlightened; and full visibility. We find the value of visibility increases with the comparative length of the reverse channel and volume, volatility, and usability of returns. Furthermore, the smarter the manufacturer, the less benefit visibility brings to the system. By this analysis, we quantify the visibility savings of radio frequency identification (RFID) in the reverse channel as a candidate enabler technology. We also provide numerical examples to show that practical approximations in inventory management may have acceptable penalties to the manufacturer with visibility.     

On‐Shelf Availability,Retail Performance,and External Audits: A Field Experiment

A potential answer to retailer's shelf out‐of‐stocks (OOS), where the item is in the store but customers cannot find it, is to employ third‐party service providers to execute audits and corrections. However, given the nontrivial cost of executing external audits, it is still necessary to assess whether external audits are capable of reducing shelf‐OOS, whether they can be performed in an economical way, and whether the benefits from the audits translate into higher sales. In an effort to address these questions, we partnered with a product manufacturer and a retail service provider and conducted a field experiment in a national retailer's store set. We used transactional data to detect abnormal operations and respond to possible shelf‐OOS by sending auditors to correct empty shelves and incorrect inventory records. At the conclusion of the experiment, we found that Stock Keeping Units in the treatment group were less likely to have shelf‐OOS and inventory record inaccuracies, and that our intervention had a positive effect on sales. Furthermore, we found that the external audit initiative is economically viable since these improvements required low auditing efforts after a transitional period, and in steady state the cost of running the program is a small fraction of the benefits it generates. We discuss the limitations of our study and the implications of our findings for researchers and practitioners.     

RFID for Better Supply‐Chain Management through Enhanced Information Visibility

Mostly fueled by mandates, adoption, and implementation of the RFID, technology in the retail industry is growing rapidly. At these early stages of adoption, one puzzling issue for retailers and suppliers is the compelling business case for RFID. In order to explore the potential business case for RFID, we conducted a case study using actual RFID data collected by a major retailer for the cases shipped by one of its major suppliers. We show the physical layout of the RFID readers on a partial supply‐chain covering product movement from distribution centers to retail stores. First, in the analysis phase, we identify several performance metrics that can be computed from the RFID readings. Next, using this RFID data, we compute the values of those performance metrics. These values represent mean time between movements at different locations. Then, we discuss how these measures can assist in improving logistical performance at a micro supply chain level of operations between a distribution center and a retail store. We present how such information can be valuable to both the retail store operator and the supplier. We also discuss the initial lessons learned from actual RFID data collected in the field, in terms of data quality issues.     

Misplaced Inventory and Radio‐Frequency Identification (RFID) Technology: Information and Coordination

Misplaced inventory is a major operational problem in many supply chains. Radio‐frequency identification (RFID) technology has been publicized as a promising solution for the misplaced inventory. Adoption of this technology has a fixed cost and variable cost of implementation, which can cause incentive issues in the supply chain. In this paper, we consider a supply chain under misplacement of inventory subject to uncertain demand. We study both centralized and decentralized cases and identify the conditions to coordinate the supply chain under implementation of RFID. We show that the incentives of the parties for investing in the technology are not perfectly aligned in the existence of the fixed cost of investment. Based on the relative payments of the parties for the fixed cost of investment, the incentives to adopt RFID can be characterized into regions, where we observe only one party or two parties benefiting from the technology when the tag price falls in a region specified in the paper. We further establish the effects of changes in mean and variance of a uniform demand on the incentives for investing in RFID and find that the incentives of the firms may indeed decrease as demand becomes more variable.     

Unlocking the Value of RFID

RFID (Radio‐Frequency Identification) technology has shown itself to be a promising technology to track movements of goods in a supply chain. As such, it can give unprecedented visibility to the supply chain. Such visibility can save labor cost, improve supply chain coordination, reduce inventory and increase product availability. Industry reports and white papers are now filled with estimates and proclamations of the benefits and quantified values of RFID. Early adopters are now rallying more and more followers. However, most such claims are educated guesses at best and are not substantiated, that is, they are not based on detailed, model‐based analysis. This paper argues that there is a huge credibility gap of the value of RFID, and that a void exists in showing how the proclaimed values are arrived at, and how those values can be realized. The paper shows that this credibility gap must be filled with solid model analysis, and therefore presents a great opportunity for the Production and Operations Management (POM) research community. The paper reviews some of the ongoing research efforts that attempt to close the credibility gap, and suggests additional directions for further strengthening the POM's contribution to help industry realize the full potentials of RFID.     

Coordination in a Single‐Supplier,Multi‐Retailer Distribution System: Supplier‐Facilitated Transshipments

We consider supplier‐facilitated transshipments for achieving supply chain coordination in a single supplier, multi‐retailer distribution system with non‐cooperative retailers. The previous transshipment literature has focused on coordination through retailer‐negotiated transshipments and thus does not consider the supplier's decision‐making. In contrast, in this study, we assume the supplier is an active participant in the system and we seek to understand how the supplier can facilitate the implementation of coordinating transshipments. We study a two‐period model with wholesale orders at the start of the first period and preventive transshipments performed at the start of the second period. Inspired by a supplier‐facilitated transshipment scheme observed in practice, we assume the supplier implements transshipments through a bi‐directional adjustment contract. Under this contract, each retailer can either buy additional inventory from, or sell back excess inventory to, the supplier. We show that coordination can be achieved through carefully designed contracts with state‐dependent adjustment prices and a wholesale price menu. We demonstrate that the supplier's role in facilitating coordinating transshipments is critical. In addition, we use our understanding of the coordinating contract form to derive some simpler and easier‐to‐implement heuristic contracts. We use a numerical study to demonstrate the value, to the supplier, of using the coordinating adjustment and wholesale prices, and to evaluate the heuristics’ performance.     

Item‐Level RFID in the Retail Supply Chain

Analyzing the proliferation of item‐level RFID, recent studies have identified the cost sharing of the technology as a gating issue. Various qualitative studies have predicted that conflict will arise, in particular in decentralized supply chains, from the fact that the benefits and the costs resulting from item‐level RFID are not symmetrically distributed among supply chain partners. To contribute to a better understanding of this situation, we consider a supply chain with one manufacturer and one retailer. Within the context of this retail supply chain, we present analytic models of the benefits of item‐level RFID to both supply chain partners. We examine both the case of a dominant manufacturer as well as the case of a dominant retailer, and we analyze the results of an introduction of item‐level RFID to such a supply chain depending on these market power characteristics. Under each scenario, we show how the cost of item‐level RFID should be allocated among supply chain partners such that supply chain profit is optimized.     

Exploring Framing Effects in Inventory Control Decisions: Violations of Procedure Invariance

Recent research on decision framing has shown that (i) there are multiple types of framing effects and (ii) the context of the decision can influence framing effects. This research examines decision framing effects in inventory control contexts by questioning the assumption of procedure invariance, that preference should not be impacted by how options are presented to a supply chain manager making an inventory control decision. Study 1 uses three single‐shot decision experiments to establish that all three types of framing effects identified by Levin et al. ( 1998 ) apply in basic inventory control contexts. Results were consistent with theory in all three cases. Given this evidence that framing effects have potential to impact inventory control decisions, two laboratory experiments in Study 2 utilize multi‐period decision tasks to demonstrate that framing effects can impact performance in a dynamic inventory decision setting similar to practice. One of the experiments in Study 2 was conducted with student subjects, while the other with inventory managers from a large retail firm. Results from both experiments provide evidence that even when initial framing effects on order quantities fade, there can be longer term effects on inventory levels and performance. Furthermore, these effects are robust to education and professional experience. The findings suggest that although a manager might select appropriate inventory control metrics, prudence must be exercised in the presentation of these metrics, and that mere presentation can be used to alleviate known human biases in inventory control decisions.     

Quantity Discount‐Based Inventory Coordination: Effectiveness and Critical Environmental Factors

It is understood that quantity discounts provide a practical foundation for coordinating inventory decisions in supply chains. The primary objective of this research is to test, under a variety of environmental conditions, the effectiveness of quantity discounts as an inventory coordination mechanism between a buyer and a supplier. A comprehensive simulation experiment with anova has been designed to investigate the impacts of (1) choice of quantity discount‐based inventory coordination policies, (2) magnitude of demand variation, (3) buyer's and supplier's relative inventory cost structure, and (4) buyer's economic time‐between‐orders on the effectiveness of supply chain inventory coordination. The analytical results confirm that the quantity discount policies have managerial properties as a mediator for inventory coordination. The results also show that the performance of quantity discount‐based inventory coordination policies is influenced significantly by environmental factors, such as the magnitude of demand variation, the buyer's and the supplier's inventory cost structure, and the buyer's economic time‐between‐orders.     

Managing Slow‐Moving Perishables in the Grocery Industry

We address the value of information and value of centralized control in the context of a two‐echelon, serial supply chain with one retailer and one supplier that provide a single perishable product to consumers. Our analysis is relevant for managing slow‐moving perishable products with fixed lot sizes and expiration dates of a week or less. We evaluate two supply chain structures. In the first structure, referred to as decentralized information sharing, the retailer shares its demand, inventory, and ordering policy with the supplier, yet both facilities make their own profit‐maximizing replenishment decisions. In the second structure, centralized control, incentives are aligned and the replenishment decisions are coordinated. The latter supply chain structure corresponds to the industry practices of company‐owned stores or vendor‐managed inventory. We measure the value of information and value of centralized control as the marginal improvement in expected profits that a supply chain achieves relative to the case when no information is shared and decision making is decentralized. Key assumptions of our model include stochastic demand, lost sales, and fixed order quantities. We establish the importance of information sharing and centralized control in the supply chain and identify conditions under which benefits are realized. As opposed to previous work on the value of information, the major benefit in our setting is driven by the supplier's ability to provide the retailer with fresher product. By isolating the benefit by firm, we show that sharing information is not always Pareto‐improving for both supply chain partners in the decentralized setting.     

3层供应链VMI集成的短期效果与博弈分析

提出了S-F-R型3层供应链的VMI集成策略,并将DONG等的单层VMI模型扩展到S-F-R型3层供应链(2级VMI)上,分析了S-F-R型3层供应链VMI集成在短期内的实施效果。此外,进一步讨论了S-F-R型3层供应链的VMI联盟博弈核心的存在性,从而证实了各方均可接受的收益分配方案是存在的,并且供应链各方所结成的VMI联盟是稳定的。     

The Failure of Practical Intuition: How Forward‐Coverage Inventory Targets Cause the Landslide Effect

Seasonal demand for products is common at many companies including Kraft Foods, Case New Holland, and Elmer's Products. This study documents how these, and many other companies, experience bloated inventories as they transition from a low season to a high season and a severe drop in service levels as they transition from a high season to a low season. Kraft has termed this latter phenomenon the “landslide effect.” In this study, we present real examples of the landslide effect and attribute its root cause to a common industry practice employing forward days of coverage when setting inventory targets. While inventory textbooks and academic articles prescribe correct ways to set inventory targets, forward coverage is the dominant method employed in practice. We investigate the magnitude and drivers of the landslide effect through both an analytical model and a case study. We find that the effect increases with seasonality, lead time, and demand uncertainty and can lower service by an average of ten points at a representative company. While the logic is initially counterintuitive to many practitioners, companies can avoid the landslide effect by using demand forecasts over the preceding lead time to calculate safety stock targets.     

Planning and Scheduling in Supply Chains: An Overview of Issues in Practice

This paper gives an overview of the theory and practice of planning and scheduling in supply chains. It first gives an overview of the various planning and scheduling models that have been studied in the literature, including lot sizing models and machine scheduling models. It subsequently categorizes the various industrial sectors in which planning and scheduling in the supply chains are important; these industries include continuous manufacturing as well as discrete manufacturing. We then describe how planning and scheduling models can be used in the design and the development of decision support systems for planning and scheduling in supply chains and discuss in detail the implementation of such a system at the Carlsberg A/S beerbrewer in Denmark. We conclude with a discussion on the current trends in the design and the implementation of planning and scheduling systems in practice.     

How to Win “Spend” and Influence Partners: Lessons in Behavioral Operations from the Outsourcing Game

The Outsourcing Game is a role‐play simulation that has been deployed in industry and academic training courses worldwide. It incorporates the concepts of hidden actions, hidden information, and misaligned incentives, and conveys messages about power, trust, and reputation. The game depicts the adventures of Acme, the brand owner of a product manufactured by an outsourced supply chain. Through a series of negotiations, Acme attempts to influence its partners (two suppliers and two service providers) by distributing its procurement “spend.” These partners, in turn, sway each other via side payments. To simulate the non‐linear shifts in power that occur as outsourcing increases, we represent decision‐making by a voting scheme with uneven vote allocations. This paper analyzes a database of game results to reveal behavioral factors that can undermine conspicuous win–win process improvements. For instance, preferences can be sensitive to the sequence in which the alternatives are encountered; decision‐makers might value not only their own rewards, but also fairness in the allocation of total gains; and effectiveness of negotiation tactics will vary with community norms of acceptable behavior. Along the way we extend the political economics literature about power in block‐based voting by proposing a heuristic approach for incorporating voter preferences.     

Channel Conflict and Coordination in the E‐Commerce Age

A number of factors, including developments in Internet‐based commerce and third‐party logistics, have led many companies to consider engaging in direct sales. Such a company may at once be both a supplier to and a direct competitor of any existing reseller partners (e.g., land‐based retailers), which can result in “channel conflict.” This can have momentous implications for distribution strategy. To generate managerial insights into this important issue, we develop a model that captures key attributes of such a setting, including various sources of inefficiency. We examine these in detail and identify a number of counterintuitive structural properties. For instance, the addition of a direct channel alongside a reseller channel is not necessarily detrimental to the reseller, given the associated adjustment in the manufacturer's pricing. In fact, both parties can benefit. Finally, we examine ways to adjust the manufacturer‐reseller relationship that have been observed in industry. These include changes in wholesale pricing, paying the reseller a commission for diverting customers toward the direct channel, or conceding the demand fulfillment function entirely to the reseller. The latter two schemes could be mutually beneficial in that they achieve a division of labor according to each channel's competitive advantage.     

Impacts of Information and Communication Technology Implementations on Employees' Jobs in Service Organizations in India: A Multi‐Method Longitudinal Field Study

India is an important frontier for economic growth, investments, and development. The service sector, like the manufacturing industry, in India is booming. Following the trend of their western counterparts, service organizations in India are implementing enterprise‐level information and communication technologies (ICTs) to support service processes. In this paper, we used socio‐technical systems theory to develop hypotheses about the effects of ICTs on the five job characteristics, i.e., skill variety, task identity, task significance, autonomy, and feedback, in the job characteristics model (JCM) in a service organization (a bank) in India. We also tested the entire JCM that relates job characteristics to job satisfaction and job performance via various mediators and moderators. In a 32‐month longitudinal field study of 1743 employees, we gathered one wave of data before an ICT implementation and two waves after the implementation. We found that, although the ICT enriched employees' job characteristics, employees reported significantly lower job satisfaction and job performance. To understand this puzzling finding, we conducted a qualitative study and identified four contextual forces that contribute to these results and hinder successful implementation of ICTs in the service sector in India and, possibly, other developing countries: environmental barriers, learning difficulty, culture shock, and employee valuation.