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Scheller College of Business

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https://hdl.handle.net/1853/70690

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Office of the Provost and Executive Vice President for Academic Affairs

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Institute for Leadership and Social Impact

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https://finding-aids.library.gatech.edu/agents/corporate_entities/255

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Publication Search Results

Now showing 1 - 10 of 29

A Simple and Robust Batch-Ordering Inventory Policy Under Incomplete Demand Knowledge

( 2005-12-16) Ferguson, Mark E. ; Bai, Liwei ; Alexopoulos, Christos ; Tsui, Kwok-Leung

Generally, the derivation of an inventory policy requires the knowledge of the underlying demand distribution. Unfortunately, in many settings such as retail, demand is not completely observable in a direct way or inventory records may be inaccurate. A variety of factors, including the potential inaccuracy of inventory records, motivate retailers to seek replenishment policies with a fixed order quantity. We derive estimators of the first two moments of the (periodic) demand by means of renewal theoretical concepts. We then propose a regression-based approximation to improve the quality of the estimators. These estimators are used in conjunction with the Power Approximation (PA) method of Ehrhardt and Mosier (1984) to obtain an (r, Q) replenishment policy. The proposed methodology is robust and easy to code into a spreadsheet application. A series of numerical studies are carried out to evaluate the accuracy and precision of the estimators, and to investigate the impact of the estimation on the optimality of the inventory policies. Our experiments indicate that the proposed (r, Q) policy is very close, with regard to the mean total cost per period, to the (s, S) policy obtained via the PA method when the demand process is fully observable.
A Comparison of Unconstraining Methods to Improve Revenue Management Systems (ed.1)

( 2005-12-07) Ferguson, Mark E. ; Crystal, Carolyn Roberts ; Higbie, Jon ; Kapoor, Rohit

A successful revenue management system requires accurate demand forecasts for each customer segment. These forecasts are used to set booking limits for lower value customers to ensure an adequate supply for higher value customers. The very use of booking limits, however, constrains the historical demand data needed for an accurate forecast. Ignoring this interaction leads to substantial penalties in a firm's potential revenues. We review existing unconstraining methods and propose a new method that includes some attractive properties not found in the existing methods. We evaluate several of the common methods used to unconstrain historical demand data against our proposed method by testing them on intentionally constrained simulated data. Results show our proposed method along with the Expectation Maximization (EM) method perform the best. We also test the revenue impact of our proposed method, EM, and “no unconstraining” on actual booking data from a hotel/casino. We show that performance varies with the initial starting protection limits and a lack of unconstraining leads to significant revenue losses.
Information Sharing to Improve Retail Product Freshness of Perishables (ed.3)

(Georgia Institute of Technology, 2005-11) Ferguson, Mark E. ; Ketzenberg, Michael E.

We explore the value of information (VOI) in the context of a retailer that provides a perishable product to consumers and receives replenishment from a single supplier. We assume a periodic review model with stochastic demand, lost sales, and order quantity restrictions. The product lifetime is fixed and deterministic once received by the retailer, although the age of replenished items provided by the supplier varies stochastically over time. Since the product is perishable, any unsold inventory remaining after the lifetime elapses must be discarded (outdated). Without the supplier explicitly informing the retailer of the product age, the age remains unknown until receipt. With information sharing, the retailer is informed of the product age prior to placing an order and hence can utilize this information in its decision–making. We formulate the retailer’s replenishment policies, with and without knowing the age of the product upon receipt, and measure the VOI as the marginal improvement in profit that the retailer achieves with information sharing, relative to the case when no information is shared. We establish the importance of information sharing and identify the conditions under which substantial benefits can be realized.
Sharing Information to Manage Perishables (ed.2)

(Georgia Institute of Technology, 2005-08) Ferguson, Mark E. ; Ketzenberg, Michael E.

We address the value of information (VOI) sharing in the context of a two echelon, serial supply chain with one retailer and one supplier that provides a single perishable product to consumers. We evaluate information sharing under two supply chain structures where the retailer shares it inventory level and replenishment policy with the supplier. In the first structure, referred to as Decentralized Information Sharing, both facilities make their own profit-maximizing replenishment decisions. In the second structure, referred to as Centralized Control, the replenishment decisions are coordinated. The latter supply chain structure corresponds to the industry practices of company owned stores or vendor managed inventory. We measure the VOI as the marginal improvement in expected profits that a supply chain achieves relative to the case when no information is shared. Key assumptions of our model include stochastic demand, lost sales, and fixed order quantities. We establish the importance of information sharing in the supply chain and identify conditions under which relatively substantial benefits are realized. As opposed to previous work on the VOI, the major benefit of information sharing in our setting is driven by the suppliers ability to provide the retailer with fresher product. By isolating the benefit by firm, we show that sharing information is not always Pareto improving for both supply chain partners in the decentralized setting.
The Effect of Competition on Recovery Strategies (ed.2)

(Georgia Institute of Technology, 2005-07) Ferguson, Mark E. ; Toktay, L. Beril

Manufacturers often face a choice of whether to recover the value in their end-of-life products through remanufacturing. In many cases, firms choose not to remanufacture, as they are (rightly) concerned that the remanufactured product will cannibalize sales of the higher-margin new product. However, such a strategy may backfire for manufacturers operating in industries where their end-of-life products (cell phones, tires, computers, automotive parts, etc) are attractive to third-party remanufacturers, who may seriously cannibalize sales of the original manufacturer. In this paper, we develop models to support a manufacturer's recovery strategy in the face of a competitive threat on the remanufactured product market. We first analyze the competition between new and remanufactured products produced by a monopolist manufacturer and identify conditions under which the firm would choose not to remanufacture its products. We then characterize the potential profit loss due to external remanufacturing competition and analyze two entry-deterrent strategies: remanufacturing and preemptive collection. We find that a firm may choose to remanufacture or preemptively collect its used products to deter entry, even when the firm would not have chosen to do so under a pure monopoly environment. Finally, we discuss conditions under which each strategy is more beneficial.
How Should a Firm Manage Deteriorating Inventory? (ed.2)

(Georgia Institute of Technology, 2005-06-12) Ferguson, Mark E. ; Koenigsberg, Oded

Firms selling goods whose quality level deteriorates over time often face difficult decisions when unsold inventory remains. Since the leftover product is often perceived to be of lower quality than the new product, carrying it over offers the firm a second selling opportunity, but at a reduced price. By doing so, however, the firm subjects sales of its new product to competition from the leftover product. We present a dynamic model that captures the effect of this competition on the firm's production and pricing decisions. We characterize the firm's optimal strategy and find conditions under which the firm is better off carrying all, some, or none of its leftover inventory. We also show that the price of the new product is independent of the quality level of the leftover product.
Information Sharing to Improve Retail Product Freshness of Perishables (ed.2)

(Georgia Institute of Technology, 2005-05-30) Ferguson, Mark E. ; Ketzenberg, Michael E.

We explore the value of information (VOI) in the context of a retailer that provides a perishable product to consumers and receives replenishment from a single supplier. We assume a periodic review model with stochastic demand, lost sales, and order quantity restrictions. The product lifetime is fixed and deterministic once received by the retailer, although the age of replenished items provided by the supplier varies stochastically over time. Since the product is perishable, any unsold inventory remaining after the lifetime elapses must be discarded outdated). Without the supplier explicitly informing the retailer of the product age, the age remains unknown until receipt. With information sharing, the retailer is informed of the product age prior to placing an order and hence can utilize this information in its decision making. We formulate the retailer's replenishment policies, with and without knowing the age of the product upon receipt, and measure the VOI as the marginal improvement in profit that the retailer achieves with information sharing, relative to the case when no information is shared. We establish the importance of information sharing and identify the conditions under which substantial benefits can be realized.
Simple Newsvendor Heuristics for Multiechelon Distribution Networks

(Georgia Institute of Technology, 2005-05-05) Ferguson, Mark E. ; Lystad, Erik D.

We consider the problem of determining optimal stocking levels in a multi-echelon distribution network consisting of m echelons and n non-identical terminal locations. Lead-times are deterministic, there are no fixed ordering costs, and unmet demand is backlogged. Both Clark and Scarf (1960) and Federgruen and Zipkin (1984b) propose heuristic solutions for such a problem based on a stochastic dynamic programming formulation. The disadvantage of their formulations lies in the very large state space needed for its solution. For serial supply chains, Shang and Song (2003) provide single period newsvendor problems that bound the optimal stocking levels determined by the Clark and Scarf (1960) serial supply chain model. Newsvendor bounds have a number of valuable qualities; they are considerably less computationally intensive, allow for ready parametric analysis, and facilitate the development of intuition. In this paper, we extend the newsvendor bounds technique to distribution systems, thus providing a simple and surprisingly accurate heuristic. Through a simulation study, we show that our heuristic significantly outperforms other common heuristics over a wide range of parameter values. The closed form solutions provided by the newsvendor bounds also allow insights into the system behavior of a distribution network that was not previously possible through alternative solution techniques.
The Outsourcing of R&D through Acquisitions in the Pharmaceutical Industry

(Georgia Institute of Technology, 2005-02-27) Higgins, Matthew ; Rodriguez, Daniel

We examine the performance of 160 pharmaceutical acquisitions from 1994-2001 and find evidence that on average acquirers realize significant positive returns. These returns are positively correlated with prior acquirer access to information about the research and development activities at target firms and a superior negotiating position. A unique Desperation Index is employed in order to determine the current status of a firm’s internal productivity. We find that firms experiencing declines in internal productivity or which are more desperate are more likely to engage in an outsourcing type acquisition in an effort to replenish their research pipelines.
Supply Chain Coordination for False Failure Returns (ed.2)

(Georgia Institute of Technology, 2005-02-22) Ferguson, Mark E. ; Guide, V. Daniel R., Jr. ; Souza, Gilvan C.

False failure returns are products that are returned by consumers to retailers with no functional cosmetic defect. The cost of a false failure return includes the processing actions of testing, refurbishing if necessary, repackaging, the loss in value during the time the product spends in reverse supply chain (a time that can exceed several months for many firms), and the loss in revenue because the product is sold at a discounted price. This cost is significant, and is incurred primarily by the manufacturer. Reducing false failure returns, however, requires effort primarily by the retailer, for example informing consumers about the exact product that best fits their needs. We address the problem of reducing false failure returns via supply chain coordination methods. Specifically, we propose a target rebate contract that pays the retailer a specific dollar amount per each unit of false failure returns below a target. This target rebate provides an incentive to the retailer to increase her effort, thus decreasing the number of false failures and (potentially) increasing net sales. We show that this contract is Pareto–improving in the majority of cases. Our results also indicate that the profit improvement to both parties, and the supply chain, is substantial.