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Intrinsic impediments to category captainship collaboration

  • *Corresponding author: Per J. Agrell

    *Corresponding author: Per J. Agrell
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  • Category captainship, the approach where retailers use manufacturer-retailer collaboration, is a common way to leverage resources and capabilities in order to improve the sales/shelf performance ratio. However, evidence suggests that the depth and effectiveness of category captains and collaboration in retail are not as high as theory or best practice would predict. Suppliers and retailers suspect each other of opportunistic behaviour detrimental to both. In a stylized dyadic supply chain model prior to the effective contracting of the category captain, we show why information asymmetry between both is preferred: the retailer will hint at or develop retaliatory power to keep the supplier in check whereas the supplier will try to extract a rent by taking advantage of available information about relationship specific investment. We model single-period interaction when the retailer has to invest in relationship specific assets and alternative category manager grooming. We provide normative and positive support both to the captain's potential opportunistic behaviour as well as the retailer's investment decision in alternative captains and monitoring ability. In a two-period extension, we show how the retailer can discipline the captain ex ante. The model and its results complement and extend research in pre-contractual category captainship and supplier-retailer collaboration and coordination. They represent a departure from the usual vision in which sharing information and collaborating generate higher supply chain rent.

    Mathematics Subject Classification: Primary: 91B32, 90B60; Secondary: 91B26.

    Citation:

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  • Figure 1.  Timeline of events when retailer and supplier agree on a contract for category captain. If the supplier refuses, the timeline is stopped on this disagreement (not represented here).

    Figure 2.  Evolution of $w_3=Z^*$ (blue) and of $\Pi_s$ (red, down-sloping) when the mean of the distribution $Z$ $\mu$ increases from 0.1 to 2 and $\sigma=0.15$. The supplier rejects the offer and turns to her second-best option when $\mu>1.25$.

    Figure 3.  Evolution of $Z^*$ when the standard deviation of the distribution of the belief about the retailer's $z$ increases from 0 to 1.5 and $\mu=0.5$.

    Figure 4.  Representation of the evolution of the supplier's expected information rent $V$ when $\sigma$ evolves from 0 to 1.5 but $\mu=0.5$.

    Figure 5.  Representation of the evolution of the supplier's expected information rent $V$ when $\mu$ evolves between 0 and 2 for $\sigma=0.2$ and $\sigma=0.5$.

    Table 1.  Table of notations

    TypeNotationDefinition
    Retailerαadditional investment for monitoring purposes
    R1revenue from the category managed by the supplier
    R2revenue from the category managed by alternative
    w1fee received under full information
    w2fee received under complete uncertainty
    w3fee received under asymmetric information
    Πr(.)retailer's profit function
    Supplier Πs(.)supplier's profit function
    S1, S2net revenues from accepted contract or not
    δs binary decision variable, 1 when
    agreeing with the retailer
    zvalue of $S_1 - S_2$
    $f_Z(.), \! F_Z(.)$pdf and cdf of belief about $z$,
    with $\mu$ as mean and $\sigma$ as standard deviation
    Vrent retained by the supplier from interaction
    μrmean of the supplier's belief of
    the retailer's distribution of $z$
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    Table 2.  Profits from the different information scenarios in the numerical illustration.

    ScenarioRetailerSupplier
    minmaxminmax
    Full information3.51
    Complete ignorance22.5
    Asymmetric information122.53.5
     | Show Table
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