Contracts and Incentive Schemes for Coordinating Production and Sales The purpose of this project is to develop a comprehensive set of incentive and contractual schemes to coordinate forecasting, sales, and manufacturing efforts in industries characterized by uncertain demand, short product life cycles, and long production lead times. Recent market trends favoring increased product variety and virtually zero customer lead times have escalated the need for coordination in fashion industries such as apparel, personal computers, and new title publishing. The benefits of coordination are numerous. Coordinating a firm's sales targets to reflect the actual capabilities of its manufacturing facilities helps avoid unfilled orders and wasted sales efforts. Coordinating production to match the arrival of early demand information from customers reduces costs by eliminating excess inventory and wasted production efforts. The obstacles to coordination also are numerous. Most conflicts stem from a disagreement over the timing and quantity of products produced. Manufacturing may complain that sales sets unrealistic production goals or deviates from forecast, leaving them with excess inventory or scrambling to meet unplanned orders. Sales may complain that manufacturing is unresponsive to customers needs and produces too little, too late. This project examines the source of these conflicts and develops a series of normative models to realign the behavior of manufacturing and sales organizations. The project consists of four integrated components: (1) an empirical investigation of how coordination within and between firms differs in selected industries plagued by uncertain demand, short product life cycles, and long production lead times, (2) an analytical study of internal incentive schemes which avoid problems of moral hazard and promote optimal profit for the firm, (3) an analytical study of external supplier contracts which encourage risk sharing and promote optimal profit for the channel, and (4) a simulation study which integrates results of the two analytical studies by testing the behavior of various incentive schemes across multiple echelons of a supply chain. The project's educational goals follow in the spirit of improving coordination efforts between sales and production. Currently, industry demand is at an all time high for undergraduate students with expertise in information technology and decision analysis tools such as simulation, math programming, risk assessment, and process analysis. The `production` of such students has not risen to meet this demand. My primary educational goal is to build-up our department's undergraduate program so enrollments are more in line with this exciting demand trend.
