Retailer's perspective in a distribution system under different levels of information visibility

Xin Zhai, Purdue University

Abstract

In this thesis we consider an infinite-horizon distribution system consisting of a system administrator and multiple independent retailers under periodic-review. The system administrator orders with an outside supplier with unlimited supplies, and then, allocates the inventory to the retailers sequentially, along a predetermined fixed route. The system administrator's objective is to minimize total system-wide expected inventory-holding and backorder-penalty costs. We compare the performance of the distribution system as a whole and each retailer as an individual under three levels of information visibility to the system administrator: high (the "current" information), medium (the "stale" information system), and low (the "independent" information system). From the system administrator's perspective, the high information-visibility system dominates the other two systems; the medium information-visibility system performs better then the low information-visibility system under certain conditions. We also show that whether or not the individual retailers benefit from higher levels of information-visibility depends on their position on the route, vehicle travel times, and customer-demand variances. Under the high information-visibility system, we study retailer behavior under a different way of information acquisition: the required information for decision-making is self-reported by each retailer itself. We show that, in the two-retailer case, both retailers truthfully reveal their inventory levels is not a Bayesian equilibrium, hence the lowest total system-wide cost cannot be achieved. We propose an incentive compatible mechanism with internal transfer payments. We show that the transfer payments at the time of allocation also induces retailer truth-telling at the time of system-replenishment. With the transfer payments, both retailers will be better off in the high information-visibility system then in either of the other two systems.

Degree

Ph.D.

Advisors

Ward, Purdue University.

Subject Area

Management

COinS