An Empirical Study of Purchase Contract and Inventory Risk Control— The Case of a 3C Chain Retailer in Taiwan
Date Issued
2004
Date
2004
Author(s)
Wu, Ching-Luen
DOI
en-US
Abstract
The main purpose of this study is to examine the relationship between purchasing rebates and risk shifting behavior in the retailing industry. Because of the difficulty of sales prediction, we propose that to bargain for a more favorable purchase contract is a more feasible way to mitigate the potential inventory risk, especially the markdown risk. Concerning shifting risk to suppliers, there are several types of inventory risk sharing mechanisms within the purchase contract, e.g. consignment contract, price protection, and return policy. Also, retailer can negotiate some purchasing rebates from suppliers, such as quantity discount, slotting allowance, etc.
Because of the confidentiality of contract data, there is limited literature in this field. Also, because of data restriction, we decide to conduct a case study to explore the fundamental purchase process in the purchase contract first. So, we collected the annual purchase data of all suppliers that deal with Case Company in 2002 and 2003. 725 valid data are collected, including 308 in 2002 and 417 in 2003. The research design of this thesis includes 3 parts as follows. Multinomial logistics model with contract type analysis, feasible generalized least square (FGLS) with price protection analysis, and logistics model with return policy. In addition, we use different form of purchasing rebates, such as percentages or natural log, to analyze the inventory risk sharing behaviors.
After field survey with Case Company’s personnel and analysis of these contractual data, we find out that: First, according to those inventory risk-shifting actions in purchase agreement, we propose a simple indicator that represents the level of overall inventory risk. Second, based on the framework of risk versus value resulted from purchasing operation; we can evaluate every supplier’s contribution to Case Company. Finally, we find out that most of the relationship between purchasing rebates and risk-shifting conducts are not mutually exclusive, i.e. Case Company can shift more risk to its supplier without sacrifice the purchasing rebates, except under the consignment contract. Under the consignment contract, most of the purchasing credits counteract to it, especially the slotting allowance. Thus, we suggest that it will be a more favorable option that a retailer pursues price protection or return policy to reduce the potential markdown risk rather than consignment contract.
Subjects
價格保護
退貨辦法
數量折扣
寄銷合約
進貨合約
新品上架費
Slotting Allowance
Quantity Discount
Consignment Contract
Return Policy
Price Protection
Purchase Contract
Type
other
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