The Impact of Pricing and Buy-back Menus on Supply Chain Performance
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Date: 01-18-2007
Start Time:
1:00pm
End Time: 2:00pm
Speaker: Pranava Goundan, MIT (Faculty Candidate)
Location: Uris 333
ABSTRACT
A supply chain setting is inherently characterized by strategic interactions between multiple agents seeking to maximize their own utilities. The design of coordinating contractual agreements as incentives to align the interests of different members of a supply chain has received wide attention in the literature. In this work, we focus on the design and analysis of simple, possibly non-coordinating contracts in a single-supplier, multi-retailer supply chain that makes both pricing and inventory decisions. Specifically, we introduce a buy-back type incentive mechanism, known as a buy-back menu contract, to improve supply chain efficiency. We compare two systems, one in which the retailers compete against each other (competing retailers system) and another in which the retailers coordinate their decisions to maximize total expected retailer profit (coordinated retailers system). In a linear additive demand setting, we show that for either retailer configuration, the proposed buy-back menu guarantees the supplier, and hence the supply chain, at least 50% of the optimal global supply chain profit. In particular, in a coordinated retailers system, the contract guarantees the supply chain at least 75% of the optimal global supply chain profit. We also analyze the impact of retail price caps on supply chain performance in this setting, and establish that price caps can hurt supply chain performance, while being significantly detrimental to retailers. However, we show that there are heuristic wholesale pricing strategies for the supplier (in both systems), with which the supplier may improve the performance of the entire supply chain to at least 75%, while still being guaranteed at least 50% of the optimal global supply chain profit. Finally, we show that in a buy-back menu regime, and all other things being equal, the supplier as well as the customers prefer that retailers compete.
Joint work with Lap Mui Ann Chan and David Simchi-Levi.
BIO
Pranava R. Goundan's research interests are in the broad area of methodological and applied Operations Research. On the applied side, his research interests focus on logistics, supply chain management, and quantitative methods for decision-making. In particular, Pranava is interested in supply contracts, production scheduling,inventory management, operations incentives, and pricing. On the methodological side, he pursue research in mathematical programming, combinatorial optimization and algorithmic game theory.
More information is available at his website.