In view of the recent popularity in supply chain management to transfer the stock level decision and the stock keeping responsibility to the upstream, we consider in this paper whether a two-member supply chain (the upstream vendor V and the downstream retailer R) operating in a newsboy environment should adopt this new mechanism. The supply chain can be operated in one of two ways: the traditional way, in which the downstream retailer decides the inventory level and keeps the inventory, or the new way in which inventory-keeping responsibility and stock level decision switch to the upstream vendor. By comparing the expected payoffs in these two cases, we find that transferring demand-uncertainty risk from R to V does not necessarily lead to a higher expected payoff for R or a lower one for V. In general, we find that the critical fractile used in a newsboy problem to determine the optimal stock level can often be used as a yardstick to quickly assess the merits of adopting the new mechanism. Furthermore, we show that when the critical fractile of V is greater than that of R, adopting the new mechanism always makes both V and R better off, provided some kind of risk-sharing rule could be implemented.
