Allocating Inventory Risk in Retail Supply Chains: Risk Aversion, Information Asymmetry, and Outside Opportunity

Chengfan Hou, Mengshi Lu
{"title":"Allocating Inventory Risk in Retail Supply Chains: Risk Aversion, Information Asymmetry, and Outside Opportunity","authors":"Chengfan Hou, Mengshi Lu","doi":"10.1287/msom.2022.0624","DOIUrl":null,"url":null,"abstract":"Problem definition: Recent global crises have caused unprecedented economic uncertainty and intensified retailers’ concerns over inventory risks. Mitigating inventory risks and incentivizing retailer orders is critical to managing retail supply chains and restoring their norms after severe impacts. We study the allocation of inventory risk using contracts in a retail supply chain with a risk-neutral manufacturer and a risk-averse retailer. We consider two factors that affect the effectiveness of contracting: (1) asymmetric risk aversion information—retailers’ attitudes are typically diverse and unknown to the manufacturer, and (2) uncertain outside opportunity—retailers typically face a volatile external business environment. Methodology/results: With a game-theoretic model that captures the interaction among risk aversion, information asymmetry, and outside opportunity, we derive the contracting equilibrium under two widely adopted risk allocation schemes—push (i.e., the retailer bears the inventory risk) and pull (i.e., the manufacturer bears the inventory risk) contracts. Contrary to the conventional wisdom that pull contracts are more effective in risk mitigation, we show that push contracts may induce larger expected order quantities and achieve the highest supply chain efficiency due to the interaction of asymmetric risk aversion information and risky outside opportunities. We also find that the manufacturer may obtain higher profits with push contracts when both the heterogeneity in the retailer’s risk attitude and the risk of the outside opportunity are sufficiently high. In addition, when the risk of the outside opportunity is in a medium range, the push contract allows the manufacturer to fully eliminate the information rent and achieve the supply chain’s first-best outcomes. We further evaluate the effects of product profitability and demand uncertainty and generalize the retailer’s risk measure to any coherent risk measure. Managerial implications: Our analysis highlights the importance of modeling asymmetric risk aversion information and risky outside opportunities in analyzing supply chain contracting. When considering these practical factors, allocating more inventory risks to a risk-averse retailer may be better than a risk-neutral manufacturer. Our results provide novel insights into the selection of proper contract types for managing inventory risks in retail supply chains.Supplemental Material: The online appendix is available at https://doi.org/10.1287/msom.2022.0624 .","PeriodicalId":501267,"journal":{"name":"Manufacturing & Service Operations Management","volume":"56 1","pages":""},"PeriodicalIF":0.0000,"publicationDate":"2024-04-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Manufacturing & Service Operations Management","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.1287/msom.2022.0624","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"","JCRName":"","Score":null,"Total":0}
引用次数: 0

Abstract

Problem definition: Recent global crises have caused unprecedented economic uncertainty and intensified retailers’ concerns over inventory risks. Mitigating inventory risks and incentivizing retailer orders is critical to managing retail supply chains and restoring their norms after severe impacts. We study the allocation of inventory risk using contracts in a retail supply chain with a risk-neutral manufacturer and a risk-averse retailer. We consider two factors that affect the effectiveness of contracting: (1) asymmetric risk aversion information—retailers’ attitudes are typically diverse and unknown to the manufacturer, and (2) uncertain outside opportunity—retailers typically face a volatile external business environment. Methodology/results: With a game-theoretic model that captures the interaction among risk aversion, information asymmetry, and outside opportunity, we derive the contracting equilibrium under two widely adopted risk allocation schemes—push (i.e., the retailer bears the inventory risk) and pull (i.e., the manufacturer bears the inventory risk) contracts. Contrary to the conventional wisdom that pull contracts are more effective in risk mitigation, we show that push contracts may induce larger expected order quantities and achieve the highest supply chain efficiency due to the interaction of asymmetric risk aversion information and risky outside opportunities. We also find that the manufacturer may obtain higher profits with push contracts when both the heterogeneity in the retailer’s risk attitude and the risk of the outside opportunity are sufficiently high. In addition, when the risk of the outside opportunity is in a medium range, the push contract allows the manufacturer to fully eliminate the information rent and achieve the supply chain’s first-best outcomes. We further evaluate the effects of product profitability and demand uncertainty and generalize the retailer’s risk measure to any coherent risk measure. Managerial implications: Our analysis highlights the importance of modeling asymmetric risk aversion information and risky outside opportunities in analyzing supply chain contracting. When considering these practical factors, allocating more inventory risks to a risk-averse retailer may be better than a risk-neutral manufacturer. Our results provide novel insights into the selection of proper contract types for managing inventory risks in retail supply chains.Supplemental Material: The online appendix is available at https://doi.org/10.1287/msom.2022.0624 .
查看原文
分享 分享
微信好友 朋友圈 QQ好友 复制链接
本刊更多论文
零售供应链中的库存风险分配:风险规避、信息不对称和外部机会
问题的定义:近期的全球危机造成了前所未有的经济不确定性,加剧了零售商对库存风险的担忧。降低库存风险和鼓励零售商下订单对于管理零售供应链和在严重冲击后恢复其正常运作至关重要。我们研究了在风险中性的制造商和规避风险的零售商的零售供应链中,利用合同分配库存风险的问题。我们考虑了影响合同有效性的两个因素:(1) 风险规避信息不对称--零售商的态度通常多种多样,制造商并不知晓;(2) 外部机会不确定--零售商通常面临动荡的外部商业环境。方法/结果:通过一个能捕捉风险规避、信息不对称和外部机会之间相互作用的博弈论模型,我们推导出了两种广泛采用的风险分配方案--推式(即零售商承担库存风险)和拉式(即制造商承担库存风险)合同--下的合同均衡。传统观点认为拉动式合约能更有效地降低风险,与此相反,我们的研究表明,由于非对称风险规避信息和风险外部机会的相互作用,推动式合约可能会诱发更大的预期订货量,并实现最高的供应链效率。我们还发现,当零售商风险态度的异质性和外部机会的风险都足够高时,制造商可以通过推动合同获得更高的利润。此外,当外部机会的风险处于中等范围时,推动合约能让制造商完全消除信息租金,实现供应链的最优结果。我们进一步评估了产品利润率和需求不确定性的影响,并将零售商的风险度量推广到任何一致的风险度量。管理意义:我们的分析强调了在分析供应链合同时模拟非对称风险规避信息和风险外部机会的重要性。考虑到这些实际因素,将更多库存风险分配给规避风险的零售商可能比风险中性的制造商更好。我们的研究结果为选择合适的合同类型以管理零售供应链中的库存风险提供了新的见解:在线附录见 https://doi.org/10.1287/msom.2022.0624 。
本文章由计算机程序翻译,如有差异,请以英文原文为准。
求助全文
约1分钟内获得全文 去求助
来源期刊
自引率
0.00%
发文量
0
期刊最新文献
Competition in Optimal Stopping: Behavioral Insights Information Dependency in Mitigating Disruption Cascades Adaptive Two-Stage Stochastic Programming with an Analysis on Capacity Expansion Planning Problem Demand Equilibria in Spatial Service Systems Optimal Salesforce Compensation with General Demand and Operational Considerations
×
引用
GB/T 7714-2015
复制
MLA
复制
APA
复制
导出至
BibTeX EndNote RefMan NoteFirst NoteExpress
×
×
提示
您的信息不完整,为了账户安全,请先补充。
现在去补充
×
提示
您因"违规操作"
具体请查看互助需知
我知道了
×
提示
现在去查看 取消
×
提示
确定
0
微信
客服QQ
Book学术公众号 扫码关注我们
反馈
×
意见反馈
请填写您的意见或建议
请填写您的手机或邮箱
已复制链接
已复制链接
快去分享给好友吧!
我知道了
×
扫码分享
扫码分享
Book学术官方微信
Book学术文献互助
Book学术文献互助群
群 号:481959085
Book学术
文献互助 智能选刊 最新文献 互助须知 联系我们:info@booksci.cn
Book学术提供免费学术资源搜索服务,方便国内外学者检索中英文文献。致力于提供最便捷和优质的服务体验。
Copyright © 2023 Book学术 All rights reserved.
ghs 京公网安备 11010802042870号 京ICP备2023020795号-1