×

Allocation of inventory responsibilities in overconfident supply chains. (English) Zbl 07602390

Summary: We analyze a supply-chain setting in which a manufacturer sells to a retailer, who in turn sells to a market with uncertain demand. A two-wholesale-price contract governs the relationship between the two parties. Before the selling season begins, the retailer preorders from the manufacturer, who stocks to at least satisfy the preorder. After the actual demand is realized, the retailer can place an at-once order, which is satisfied up to the manufacturer’s stock availability. The contract specifies the preorder and at-once order wholesale prices. The retailer’s preorder and the manufacturer’s stocking level determine that the contract functions in one of three regimes, namely Push, Pull, or partial advance booking (PAB). The retailer undertakes all inventory responsibilities in Push, whereas the manufacturer does so in Pull, and they share inventory responsibilities in PAB. An overconfident party holds a biased belief that the demand is less variable than it actually is. We investigate the influences of overconfidence by either one or both parties on the allocation of inventory responsibilities and profitability. Each party can benefit from a biased belief by the other party, and the manufacturer may even benefit from its unilateral overconfidence. The presence of overconfident channel parties could weaken the negative effect of double marginalization in certain circumstances. Furthermore, channel parties’ overconfidence reduces the Pareto-improvement opportunities for most single or two-wholesale-price contracts, and the manufacturer’s overconfidence plays a more prominent role in this reduction. We also compare channel parties’ perceived Pareto-improvement sets with their real Pareto-improvement sets to identify profit improvement opportunities.

MSC:

90Bxx Operations research and management science
PDFBibTeX XMLCite
Full Text: DOI

References:

[1] Ancarani, A.; Mauro, C. D.; D’Ursob, D., Measuring overconfidence in inventory management decisions, Journal of Purchasing & Supply Management, 22, 2, 171-180 (2016)
[2] Aumann, R. J., Agreeing to disagree, The Annals of Statistics, 4, 6, 1236-1239 (1976) · Zbl 0379.62003
[3] Aviv, Y.; Pazgal, A., Optimal pricing of seasonal products in the presence of forward-looking consumers, Manufacturing & Service Operations Management, 10, 3, 339-359 (2008)
[4] Bostian, A.; Holt, C.; Smith, A., Newsvendor “Pull-to-center” effect: Adaptive learning in a laboratory experiment, Manufacturing & Service Operations Management, 10, 4, 590-608 (2008)
[5] Budde, M.; Minner, S., First- and second-price sealed-bid auctions applied to push and pull supply contracts, European Journal of Operational Research, 237, 370-382 (2014) · Zbl 1304.91082
[6] Cachon, G., The allocation of inventory risk in a supply chain: Push, pull, and advance- purchase discount contracts, Management Science, 50, 2, 222-238 (2004) · Zbl 1232.90027
[7] Davis, A. M.; Katok, E.; Santamaría, N., Push, pull, or both? A behavioral study of how the allocation of inventory risk affects channel efficiency, Management Science, 60, 11, 2666-2683 (2014)
[8] Dong, L.; Zhu, K., Two-wholesale-price contracts: Push, pull, and advance-purchase discount contracts, Manufacturing & Service Operations Management, 9, 3, 291-311 (2007)
[9] Donohue, K. L.; Özer, Ö.; Zheng, Y., Behavioral operations: Past, present, and future, Manufacturing & Service Operations Management, 22, 1, 191-202 (2020)
[10] Gervais, S.; Heaton, J. B.; Odean, T., The positive role of overconfidence and optimism in investment policy, The Rodney L. White Center for Financial Research. (2002), The Wharton School, University of Pennsylvania
[11] Granot, D.; Yin, S., Price and order postponement in a decentralized newsvendor model with multiplicative and price-dependent demand, Operations Research, 56, 1, 121-139 (2008) · Zbl 1167.90379
[12] Graves, S. C., A single-item inventory model for a nonstationary demand process, Manufacturing & Service Operations Management, 1, 1, 50-61 (1999)
[13] He, X.; Khouja, M., Pareto analysis of supply chain contracts under satisficing objectives, European Journal of Operational Research, 214, 53-66 (2011) · Zbl 1218.90088
[14] Hilary, G.; Hsu, C., Endogenous overconfidence in managerial forecasts, Journal of Accounting and Economics, 51, 3, 300-313 (2011)
[15] Huang, S.; Guan, X.; Chen, Y., Retailer information sharing with supplier encroachment, Production and Operations Management, 27, 6, 1133-1147 (2018)
[16] Jiang, L.; Hao, Z., Alleviating supplier’s capital restriction by two-order arrangement, Operations Research Letters, 42, 444-449 (2014) · Zbl 1408.90039
[17] Kirshner, S. N.; Shao, J., The overconfident and optimistic price-setting newsvendor, European Journal of Operational Research, 277, 1, 166-173 (2019) · Zbl 1430.90026
[18] Lee, Y. S.; Siemsen, E., Task decomposition and newsvendor decision making, Management Science, 63, 10, 3226-3245 (2017)
[19] Li, M., Overconfident distribution channels, Production and Operations Management, 28, 6, 1347-1365 (2019)
[20] Li, M.; Petruzzi, N.; Zhang, J., Overconfident competing newsvendors, Management Science, 63, 8, 2637-2646 (2017)
[21] Loch, C. H.; Terwiesch, C.; Thomke, S., Parallel and sequential testing of design alternatives, Management Science, 47, 5, 663-678 (2001)
[22] Lu, X.; Shang, J.; Wu, S.; Hegde, G.; Vargas, L., Impacts of supplier hubris on inventory decisions and green manufacturing endeavors, European Journal of Operational Research, 245, 121-132 (2015) · Zbl 1346.90040
[23] Moore, D.; Carter, A.; Yang, H., Wide of the mark: Evidence on the underlying causes of overprecision in judgment, Organizational Behavior & Human Decision Processes, 131, 110-120 (2015)
[24] Moore, D.; Healy, P., The trouble with overconfidence, Psychological Review, 115, 2, 502-517 (2008)
[25] Oraiopoulos, N.; Kavadias, S., Is diversity (un-)biased? Project selection decisions in executive committees, Manufacturing & Service Operation Management, 47, 7, 894-914 (2020)
[26] Ren, Y.; Croson, D.; Croson, R., The overconfident newsvendor, Journal of the Operational Research Society, 68, 5, 496-506 (2017)
[27] Ren, Y.; Croson, R., Overconfidence in newsvendor orders: An experimental study, Management Science, 59, 11, 2502-2517 (2013)
[28] Schweitzer, M.; Cachon, G., Decision bias in the newsvendor problem with a known demand distribution: Experimental evidence, Management Science, 46, 3, 404-420 (2000) · Zbl 1231.90058
[29] Song, J.; Houtum, G.; Mieghem, J., Capacity and inventory management: Review, trends and projections, Manufacturing & Service Operations Management, 22, 1, 36-46 (2020)
[30] Yang, L.; Cai, G.; Chen, J., Push, pull, and supply chain risk-Averse attitude, Production and Operations Management, 27, 8, 1534-1552 (2018)
This reference list is based on information provided by the publisher or from digital mathematics libraries. Its items are heuristically matched to zbMATH identifiers and may contain data conversion errors. In some cases that data have been complemented/enhanced by data from zbMATH Open. This attempts to reflect the references listed in the original paper as accurately as possible without claiming completeness or a perfect matching.