Supply Chain Performance Under Market Valuation: An Operational Approach to Restore Efficiency

Authors:
Guoming Lai;Wenqiang Xiao;Jun Yang
Affiliations:
McCombs School of Business, University of Texas at Austin, Austin, Texas 78712;Stern School of Business, New York University, New York, New York 10012;School of Management, Huazhong University of Science and Technology, Wuhan, 430074 Hubei, China
Venue:
Management Science
Year:
2012

Citing 11
Cited 0

Note. the Role of Returns Policies in Pricing and Inventory Decisions for Catalogue Goods

Management Science
Selling to the Newsvendor: An Analysis of Price-Only Contracts

Manufacturing & Service Operations Management
Contracting to Assure Supply: How to Share Demand Forecasts in a Supply Chain

Management Science
Supply Chain Coordination with Revenue-Sharing Contracts: Strengths and Limitations

Management Science
What Actually Happened to the Inventories of American Companies Between 1981 and 2000?

Management Science
Strategic Commitments for an Optimal Capacity Decision Under Asymmetric Forecast Information

Management Science
Demand-Supply Mismatches and Stock Market Reaction: Evidence from Excess Inventory Announcements

Manufacturing & Service Operations Management
Incentives for Retailer Forecasting: Rebates vs. Returns

Management Science
Dynamic Supplier Contracts Under Asymmetric Inventory Information

Operations Research
Procurement Mechanism Design in a Two-Echelon Inventory System with Price-Sensitive Demand

Manufacturing & Service Operations Management
Channel Stuffing with Short-Term Interest in Market Value

Management Science

Quantified Score

Hi-index	0.01

Visualization

Abstract

Based on a supply chain framework, we study the stocking decision of a downstream buyer who receives private demand information and has the incentive to influence her capital market valuation. We first characterize a market equilibrium under a general, single buyback contract. We show that the buyer's stocking decision can be distorted in equilibrium. Such a downstream stocking distortion hurts the buyer firm's own performance, and it also influences the performances of the supplier and the supply chain. We further reveal scenarios where full supply chain efficiency cannot be reached under any single buyback contract. Then, focusing on contract design, we characterize conditions under which a menu of buyback contracts can prevent downstream stocking distortion and restore full efficiency in the supply chain. Our study demonstrates that in a supply chain context, a firm's incentive to undertake real economic activities to influence capital market valuation can potentially be resolved through operational means. This paper was accepted by Yossi Aviv, operations management.