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Capacity allocation using past sales: when to turn-and-earn. (English) Zbl 1231.90080
Summary: Consider a supplier selling to multiple retailers. Demand varies across periods, but the supplier’s capacity and wholesale price are fixed. If demand is high, the retailers’ needs exceed capacity, and the supplier must implement an allocation mechanism to dole out production. We examine how the choice of mechanism impacts retailer actions and supply chain performance. In particular, we analyze turn-and-earn allocation, a method commonly used in the automobile industry. This scheme bases current allocations on past sales and thus enables retailers to influence their future allocations; they compete for scarce capacity even if they do not compete for customers.

MSC:
90B06 Transportation, logistics and supply chain management
91A80 Applications of game theory
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