Capacity allocation using past sales: when to turn-and-earn

The turn-and-earn allocation method which is commonly used in the automobile industry is analyzed. It is demonstrated that turn-and-earn induces the retailers to increase their sales when demand is low and the supplier's capacity is otherwise underutilized. This in turn increases supplier profits. The method is best characterized as a means for the supplier to increase profits at the expense of the retailers and potentially even the supply chain.