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ARTICLE TITLE

Zinn, Walter, Levy, Michael, "Speculative inventory management: A total channel perspective", International Journal of Physical Distribution and Materials Management, Vol. 18, No. 5, 1988, pp. 34-39.

 

ABSTRACT

An attempt is made to reconcile potential conflicts between the marketing channel concepts of the Principle of Postponement-Speculation (PP/S) of Alderson (1950) and Bucklin (1965) and the Concept of Functional Spin-Off (CFS) of Stigler (1951) and Mallen (1973) using the Governance Structures framework (Williamson, 1979). PP/S balances the advantages of postponement against the advantages of speculation to determine whether a speculative inventory will show up in the marketing channel. Firms use the CFS to try to lower their own total average cost; this can be done by spinning off a function like inventory to another channel member. The emergence of a governance structure is based on a vertical dimension (the frequency with which buyers and sellers interact) and a horizontal dimension (the degree to which inventory is resalable in a market). CFS is found to be useful in explaining actual company behavior in cases in which management's objective is to minimize the firm's average cost. The PP/S is the more suitable method for deciding under what circumstances a speculative inventory should appear in the marketing channel in all other situations.