Title: The manufacturer's response to stock-outs in a single manufacturer-retailer channel

Authors: Christos Koulamas

Addresses: Department of Decision Sciences and Information Systems, Florida International University, Miami, FL 33199, USA

Abstract: Product unavailability is a common problem in supply chains with stochastic end-consumer demand and the impact of stock-outs extends beyond the short term to also affect long-term profits. Furthermore, the long-term stock-out effect for the manufacturer is not necessarily the same as the long-term stock-out effect for the retailer owing to brand substitution by the retailer in the event of a stock-out. In this paper, we incorporate the long-term stock-out effects on the manufacturer|s profit in a single manufacturer-retailer distribution channel. We study the merits of the manufacturer|s response to these effects via an incentives campaign targeting the consumers who experience stock-outs. Our findings show that the manufacturer reduces the wholesale price and the retailer responds by stocking a larger quantity, resulting in fewer stock-outs in the channel. Our model can serve as a building block to study the long-term stock-out effects in more complex supply chain structures.

Keywords: distribution channels; stock-out policy; contracts; supply chain management; SCM; product unavailability; long-term effects; incentives campaign; price reduction.

DOI: 10.1504/IJSOM.2008.017427

International Journal of Services and Operations Management, 2008 Vol.4 No.4, pp.417 - 426

Published online: 07 Mar 2008 *

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