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Execution Quality and Chargeback Penalties in Retail Supply Chains

33 Pages Posted: 30 Jul 2015 Last revised: 22 Jun 2017

Nathan Craig

Ohio State University (OSU) - Fisher College of Business

Nicole DeHoratius

University of Chicago - Booth School of Business

Diego Klabjan

Northwestern University

Date Written: May 31, 2016

Abstract

Retailers replenish inventory by placing purchase orders (POs) with suppliers. POs specify product order quantities and delivery times as well as many other aspects of the fulfillment process, such as bar code standards and placement, carton labeling requirements, hanger styles, and product packaging. Retailers expect suppliers to adhere to these fulfillment terms in order to optimize their supply chains, employ automation, or manage pack-by-store product flows. When fulfilling an order, a supplier may commit a fulfillment error, i.e., the supplier may fail to adhere to the specified terms. Although fulfillment errors are common, retailers can correct the majority of fulfillment errors through rework. Herein, we study the cost impact of correctable fulfillment errors. We demonstrate that the commonly used incentive to prevent fulfillment errors - chargebacks - do not impose penalties aligned with the true cost of fulfillment errors in this retail context. Overall, our research provides guidance to managers seeking to mitigate fulfillment errors.

Suggested Citation

Craig, Nathan and DeHoratius, Nicole and Klabjan, Diego, Execution Quality and Chargeback Penalties in Retail Supply Chains (May 31, 2016). Available at SSRN: https://ssrn.com/abstract=2637594 or http://dx.doi.org/10.2139/ssrn.2637594

Nathan Craig

Ohio State University (OSU) - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

Nicole DeHoratius (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Diego Klabjan

Northwestern University ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

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