Browsing by Author "Sen, Alper"

Now showing 1 - 2 of 2
  • Thumbnail Image
    ItemRestricted
    Delegation of Stocking Decisions under Asymmetric Demand Information
    (2017-11-22) Sen, Alper; Alp, Osman
    Headquarters of a retailer delegates stocking decisions to store managers at its various stores. Store managers have complete information of the local demand process, whereas headquarters has partial information. The problem is how to incentivize the managers to make stocking decisions that minimizes headquarters' expected overage and underage costs. We investigate performance measurement schemes in which headquarters incite store managers make stocking decisions in headquarters' best interests using their private information. Adopting such schemes helps retailers reduce stock-outs and attain desired service levels across their stores. Headquarters knows that the underlying demand process at a store for a product over a replenishment cycle is one of J possible Wiener demand processes, whereas store manager knows the specific process with certainty. Store manager creates a single order before the cycle. Headquarters use an incentive scheme which is based on the end-of-period leftover inventory and on a stock-out occasion at a pre-specified inspection time {\it before} the end of a period. Headquarters' problem to determine the inspection time and relative importance of stock-outs to leftover stock is formulated as a constrained non-linear optimization problem in a single period setting and a dynamic program in a multi-period setting. The proposed ``early inspection'' scheme leads to perfect alignment under certain conditions. Under more general conditions, it provides a near-perfect alignment and performs strictly better than stock-out inspection at the end. Using historical sales data of a retailer, we show that this scheme can lead to considerable cost reduction. Even though attaining high on-shelf availability is crucial in retail, stock-out related measures are not reflected in store managers' performance scorecards. We prescribe a novel, easy and practical method for headquarters with which they can increase on-shelf-availability by relying on their store managers' private demand information. The proposed method decidedly outperforms the computer aided ordering systems that are commonly used in practice.
  • Thumbnail Image
    ItemOpen Access
    Store Incentives and Retailer Inventory Performance under Asymmetric Demand Information and Unobservable Lost Sales*
    (2017) Alp, Osman; Sen, Alper
    We study incentive issues in an inventory management setting in which high on-shelf availability is crucial. Headquarters of a retailer delegates inventory replenishment decisions to store managers in its various stores. Store manager has complete information of the local demand process, whereas headquarters has partial information and cannot observe unsatisfied demand. The problem is how to incentivize the manager to make an order quantity decision that minimizes the sum of headquarters’ expected overage and underage costs. We propose two incentive schemes that explicitly incorporate excess inventory and stock-outs into the store manager’s performance measurement.We prove that a perfect alignment of incentives is possible under certain conditions. Interestingly, perfect or near-perfect alignment requires the stock-out inspection before the end of the replenishment cycle. We validate our approach and assumptions on a retailer’s actual data and show that the retailer may improve its profitability by using the proposed incentive scheme.