Santiago Kraiselburd

Alignment in Cross-Functional and Cross-Firm Supply Chain Planning

In this paper, we seek to use quantitative models to help appreciate the behavioral processes associated with successful cross-functional and cross-firm alignment in supply/demand planning. We model the interaction between a sales and a manufacturing function within a firm, or between an upstream and downstream firm. We claim that misalignment is costly both to the involved functions/firms and to the rest of the organization or supply chain, and focus the paper on studying the circumstances under which alignment will or will not happen. Using game theory, we find that, although misaligned economic incentives can play a role in explaining misalignment of planning behaviors, there is another important issue to consider: in our setting, the key factor that determines whether two functions or firms can align their planning is how much each party knows about the other’s beliefs about demand. Thus, in this paper’s setting, improved communication can induce alignment even if no economic incentives are changed. While consistent with the predominant view in organizational behavior (OB), this is a fundamental departure from the extant operations management (OM) literature.

Impact of Supply Chain Contracts on Incentives for Lead Time Reduction

We show that in supply chains where retailer effort can substantially affect sales, longer lead times can result in higher sales for the manufacturer. Hence, manufacturers might not want to reduce lead times even if it was free or inexpensive to do so. Using a one-period model where retailer effort affects sales and is exerted after stocking quantities are determined, manufacturers and retailers have a price-only contract, lead time from the manufacturer to retailer could be reduced to zero at no additional cost (i.e. there were no capacity constraints, and there was no added per unit cost of producing with short lead times), and there is no competition (i.e., the retailer and manufacturer have exclusive contracts), we still find conditions under which manufacturers are better off sticking to longer lead times. Our paper highlights how supply chain contracts could act as a potential barrier to reducing lead times.

When is Vendor Managed Inventory Good for the Retailer? Impact of Relative Margins and Substitution Rates

When customers cannot find a particular item at a retailer because it is out of stock, they are likely, with some probability, to switch to a substitute product from another manufacturer at the same store. Analyzing a two-product full substitution case, this paper examines two beliefs argued in the literature: (1) that, under Vendor Managed Inventory (VMI), the retailers would benefit because manufacturers would increase stocking quantities to avoid losing sales to a competitor and (2) that substitution benefits retailers who make a sale regardless. We find that the first proposition, while appealing, is simply not true for many cases. We also find that the second proposition does not hold for a wide number of cases. We contribute to the understanding of the inherent tradeoffs involved in deciding to use RMI or VMI in the presence of competing, substitute products.