Quick Response Service Commitment

Since QR without any agreements does not benefit the manufacturer, coordination agreements may be necessary. One possible agreement is that the retailer commits to a higher service level, say 100% in this example, in return for the manufacturer providing QR. 

What is the impact on the manufacturer and retailer under this scheme  

Answer We will have to change the inventory purchased after observing demand to guarantee a 100% service level. We will thus get the following results  

Thus the manufacturer and the retailer are better off with this agreement than in the original system because it is Pareto improving. 

Consider two different newspaper advertisements that can be interpreted as enabling monitoring of these agreements. In the advertisement for Enzo Angiolini shoes, the retailer told the public that if the shoes were not in stock at the store, then customers would be mailed a free pair (either from another store or from the manufacturer). Note that this 

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