On Manufacturing/Marketing Incentives

• DOI: 10.1287/mnsc.37.9.1166
• Publication Date: 2008-11-08T14:58:02Z
• Authors: Evan L. Porteus; Seungjin Whang
• Keywords: Marketing plan

Stereotypically, marketing is mainly concerned about satisfying customers and manufacturing interested in factory efficiency. Using the principal-agent (agency) paradigm, which assumes that managers of firm will act their self-interest, we seek incentive plans induce those to so owner can attain as much possible residual returns. One optimal plan be interpreted follows: The subcontracts pay manager a fixed rate for all capacity he delivers. Each receives returns from his product. In turn, fee owner. Under this plan, often complain stock level decisions, even though these levels are announced advance. revised eliminate such complaints by delegating stocking decisions respective managers, without any loss. This requiring make futures market capacity, paying expected marginal value each unit delivered, receiving realized losing money on average process.