Intrafirm Incentives and Supply Chain Performance

  • Narendra Agrawal
  • Andy A. Tsay
Part of the International Series in Operations Research & Management Science book series (ISOR, volume 42)


Companies in many industries have begun to realize that conflicts of interest among the various parties in a supply chain can engender operationally inefficient behavior. Consequently, many researchers have become interested in identifying and evaluating methods of coordinating supply chains in which multiple decision makers pursue individual agendas (cf. [32]). The typical approach in the OM literature is to partition a traditional inventory model into a number of subproblems, each representing the decisions and objectives of a distinct organization. Most commonly, the supply chain is assumed to contain just two firms, e.g., a manufacturer and a retailer. The analysis then proceeds to pinpoint the root causes of inefficiency, and recommend mechanisms for appropriately adjusting individual incentives.


Supply Chain Consumer Surplus Order Quantity Wholesale Price Retail Price 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. [1]
    Atkinson, A.A. (1979) Incentives, Uncertainty, and Risk in the Newsboy Problem. Decision Sciences, Vol. 10, 341–357.CrossRefGoogle Scholar
  2. [2]
    Blackwell, D.W., J.A. Brickley, and M.S. Weisbach. (1994) Accounting Information and Internal Performance Evaluation. Journal of Accounting and Economics, Vol. 17, 331–358.CrossRefGoogle Scholar
  3. [3]
    Bordley, R. and M. Licalzi. (1998) Decision Analysis Using Targets Instead of Utility Functions. Working Paper, Knowledge Network, GM Research Development Center.Google Scholar
  4. [4]
    Emmons, H. and S.M. Gilbert. (1998) Note: The Role of Returns Policies in Pricing and Inventory Decisions for Catalogue Goods. Management Science, Vol. 44, No. 2, 276–283.CrossRefGoogle Scholar
  5. [5]
    Fox, J. (1997) The Next Best Thing to Free Money. Fortune, July 7, 52–62.Google Scholar
  6. [6]
    Gaver, J.J., K.M. Gaver, and J.R. Austin. (1995) Additional Evidence on Bonus Plans and Income Management. Journal of Accounting and Economics, Vol. 19, 3–28.CrossRefGoogle Scholar
  7. [7]
    Gallego, G., and G. Van Ryzin. (1994) Optimal Dynamic Pricing of Inventories with Stochastic Demand Over Finite Horizons. Management Science, Vol. 40, No. 8, 999–1020.CrossRefGoogle Scholar
  8. [8]
    Geoffrion, A.M. (1967) Stochastic Programming With Aspiration or Fractile Criterion. Management Science, Vol. 13, 672–679.CrossRefGoogle Scholar
  9. [9]
    Harlow, W.V. (1991) Asset Allocation in a Downside Risk Framework. Financial Analysts Journal, Sept—Oct, 28–40.Google Scholar
  10. [10]
    Healy, P.M. (1985) The Effect of Bonus Schemes on Accounting Decisions. Journal of Accounting and Economics, Vol. 7, 85–107.CrossRefGoogle Scholar
  11. [11]
    Holthausen, R.W., D.F. Larcker, and R.G. Sloan. (1995) Annual Bonus Schemes and the Manipulation of Earnings. Journal of Accounting and Economics, Vol. 19, 29–74.CrossRefGoogle Scholar
  12. [12]
    Ismail, B.E. and J.G. Louderback. (1979) Optimizing and Satisficing in Stochastic Cost-Volume-Profit Analysis. Decision Sciences, Vol. 10, No. 2, 205–217.CrossRefGoogle Scholar
  13. [13]
    Karlin, S. and C.R. Carr. (1962) Prices and Optimal Inventory Policies. in K.J. Arrow, S. Karlin, and H. Scarf (Eds.), Studies in Applied Probability and Management Science, Stanford University Press, Stanford, CA.Google Scholar
  14. [14]
    Khouja, M. (1995) The Newsboy Problem Under Progressive Multiple Discounts. European Journal of Operational Research, Vol. 84, No. 2, 458–466.CrossRefGoogle Scholar
  15. [15]
    Kouzes, J.M. and B.Z. Posner. (1995) The Leadership Challenge, Jossey-Bass, San Francisco Google Scholar
  16. [16]
    Lariviere, M.A. (1999) Supply Chain Contracting and Coordination with Stochastic Demand. in Quantitative Models for Supply Chain Management, S. Tayur, R. Ganeshan, and M. Magazine (Eds.), Kluwer, Norwell, MA.Google Scholar
  17. [17]
    Lau, A.H. and H. Lau. (1988) The Newsboy Problem with Price-Dependent Demand Distribution. IIE Transactions, Vol. 20, No. 2, 168–175.CrossRefGoogle Scholar
  18. [18]
    Lau, A.H. and H. Lau. (1988) Maximizing the Probability of Achieving a Target Profit in a Two-Product Newsboy Problem. Decision Sciences, Vol. 19, No. 2, 392–408.CrossRefGoogle Scholar
  19. [19]
    Lau, H. (1980) The Newsboy Problem Under Alternative Optimization Objectives. Journal of the Operational Research Society, Vol. 31, 525–535.Google Scholar
  20. [20]
    Lau, H. (1980) Some Extensions of Ismail-Louderbacks’s Stochastic CVP Model Under Optimizing and Satisficing Criteria. Decision Sciences, Vol. 11, No. 3, 557–561.CrossRefGoogle Scholar
  21. [21]
    Lee, H.L., P. Padmanabhan, and S. Whang. (1997) The Bullwhip Effect in Supply Chains Sloan Management Review, Vol. 38, No. 3, 93–102.Google Scholar
  22. [22]
    Li, J., H. Lau, and A.H. Lau. (1990) Some Analytical Results For a Two-Product Newsboy Problem. Decision Sciences, Vol. 21,No. 4, 710–726 Google Scholar
  23. [23]
    Li, J., H. Lau, and A.H. Lau. (1991) A Two-Product Newsboy Problem with Satisficing Objective and Independent Exponential Demands. IIE Transactions, Vol. 23, No. 1, 29–39.CrossRefGoogle Scholar
  24. [24]
    March J.G. and H.A. Simon. (1958)Organizations,Wiley, New York, NY.Google Scholar
  25. [25]
    Norland, R.E. (1980) Refinements in the Ismail-Louderback Stochastic CVP Model. Decision Sciences, Vol. 11, No. 3, 562–572.CrossRefGoogle Scholar
  26. [26]
    Petruzzi, N.C. and M. Dada. (1999) Pricing and the Newsvendor Problem: A Review with Extensions. Operations Research, Vol. 47, No. 2, 183–194.CrossRefGoogle Scholar
  27. [27]
    Porteus, E.L. (1990) Stochastic Inventory Theory. in D.P. Heyman and M.J. Sobel (Eds.), Handbooks in Operations Research and Management Science, Vol. 2 ( Stochastic Models), Elsevier Science Publishing Company, New York, NY.Google Scholar
  28. [28]
    Sankarasubramanian, E. and S. Kumaraswamy. (1983) Note on `Optimal Ordering Quantity to Realize a Pre-Determined Level of Profit.’ Management Science, Vol. 29, No. 4, 512–514.CrossRefGoogle Scholar
  29. [29]
    Shih, W. (1979) A General Decision Model for Cost-Volume-Profit Analysis Under Uncertainty. The Accounting Review, Vol. 54, No. 4, 687–706.Google Scholar
  30. [30]
    Spengler, J.J. (1950) Vertical Restraints and Antitrust Policy. Journal of Political Economy, Vol. 58, 347–352.CrossRefGoogle Scholar
  31. [31]
    Tirole, J. (1988) The Theory of Industrial Organization, The MIT Press, Cambridge, MA.Google Scholar
  32. [32]
    Tsay, A.A., S. Nahmias, and N. Agrawal. (1999) Modeling Supply Chain Contracts: A Review. in Quantitative Models for Supply Chain Management, S. Tayur, R. Ganeshan, and M. Magazine (Eds.), Kluwer, Norwell, MA.Google Scholar
  33. [33]
    Varian, H.R. (1984) Microeconomic Analysis, Second Edition, W.W. Norton and Co., New York, NY.Google Scholar
  34. [34]
    Zimmerman, J.L. (1995) Accounting for Decision Making and Control, Irwin, Chicago.Google Scholar

Copyright information

© Springer Science+Business Media New York 2002

Authors and Affiliations

  • Narendra Agrawal
    • 1
  • Andy A. Tsay
    • 1
  1. 1.Department of Operations and Management Information Systems Leavey School of BusinessSanta Clara UniversitySanta ClaraUSA

Personalised recommendations