This paper studies a distribution system consisting of one supplier and multiple retailers under dynamic allocation policy and static routing policy. The system is managed under two different information scenarios: in scenario (a) the supplier has access to each retailer’s inventory level in real time and makes system replenishment and allocation decisions based on these accurate data; and in scenario (b) the supplier has no access to retailers’ inventory data but makes system replenishment and allocation decisions based on the information reported by the retailers at times of system replenishment and each allocation. The results show that under scenario (b), retailers will never truthfully report their inventory levels to the supplier at the time of either system replenishment or allocation. In addition, system expected cost under scenario (b) is strictly higher than that under scenario (a). To achieve the lower system expected cost in scenario (b), we propose an incentive compatible mechanism with a one-time transfer payment which makes truth-telling Bayesian equilibrium for the retailers at times of both system replenishment and allocation.