Allocation of Decision Rights and Inventory Ownership in Retail Supply Chains

Motivated by the contrasting strategic choices made by two divisions of 7-Eleven regarding the risk ownership of excess inventory, our research aims to understand the drivers of the choice between consignment and retail ownership of inventory and to develop rules of thumb for determining what the right mode of operation is for different operating environments. To this end, we build a two-stage supply chain model with one retailer and one supplier, where the two parties differ in their forecasting capabilities. We investigate how power structure, differences in forecasting capabilities, product and store characteristics affect the choice of the mode of operation. Our results have several implications regarding inventory ownership in supply chains