(Georgia Institute of Technology, 2005-12-15)
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 and an ability to price discriminate. By doing so, however, the firm
subjects sales of its new product to competition from the leftover product. We present
a two period 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, compared to a firm that acts myopically in the first period, a firm
that takes into account the effect of first period decisions on second period profits will
price its new product higher and stock more of it in the first period. Thus, the benefit
of having a second selling opportunity dominates the detrimental effect of cannibalizing
sales of the second period new product.
(Georgia Institute of Technology, 2005-11)
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 or
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 the
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.
(Georgia Institute of Technology, 2005-11)
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.