Execution Quality and Chargeback Penalties in Retail Supply Chains

44 Pages Posted: 30 Jul 2015 Last revised: 30 Mar 2020

See all articles by Nathan Craig

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: March 30, 2020

Abstract

Retailers procure inventory by placing purchase orders (POs) with suppliers. POs specify product price, quantity, quality, delivery times, and other aspects of the fulfillment process, such as carton labeling requirements and packaging formats. When servicing an order, a supplier may fail to meet the fulfillment terms, thus committing a fulfillment error and triggering a chargeback penalty. We collect supplier compliance manuals from 111 retailers to characterize fulfillment errors and chargebacks in practice. The majority of chargeback penalties listed by retailers pertain to execution quality: aspects of the fulfillment process beyond product price, quantity, quality, and delivery time. We use an empirically grounded analytical model in combination with game-theoretic analysis to demonstrate that the chargebacks most commonly used in practice do a poor job coordinating supply chains around execution quality. This result contradicts the recommendations in the trade literature.

Suggested Citation

Craig, Nathan and DeHoratius, Nicole and Klabjan, Diego, Execution Quality and Chargeback Penalties in Retail Supply Chains (March 30, 2020). Chicago Booth Research Paper No. 12-58, 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

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
228
Abstract Views
1,583
rank
146,646
PlumX Metrics