Volume 4:4

Copies of these published papers may be downloaded from Informs Online

Title: "Coordinating Replenishment and Pricing in a Firm"

Author(s): Qing Li, Derek Atkins

Abstract: Replenishment and pricing strategies are traditionally determined by entirely separate units of a firm, the former by Production, and the latter by Marketing. In a large organization Production and Marketing are traditionally measured in terms of performance criteria appropriate and relevant within the world in which they operate rather than in terms of overall company performance.  We consider a situation where the headquarters uses a simple linear transfer price between the two functions to govern the transactions. The misaligned incentives among these functional managers are caused by a transfer price between them that distorts the marginal production cost and revenue, as well as by a misallocation of cost: Marketing's pricing strategy influences expected leftover inventory but only Production incurs the cost. The misalignment can be mitigated through the following two ways. First, if Production commits to a service level instead of an inventory level, both Production and Marketing, and hence the firm as a whole, are better off. Second, The same improvement can be achieved through organizational changes so that Marketing becomes the dominant function. We also propose a mechanism that aligns the functional managers' incentives to be compatible to the firm.

The Consulting Senior Editor was Evan Porteus.

The manuscript was submitted on May 29, 2001. The average review cycle time was 82 days.

Corresponding author: Derek Atkins, The University of British Columbia, Faculty of Commerce and Business Administration, Vancouver, B.C., Canada V6T 1Z2  Phone: (604) 822-4544,  E-mail: derek.atkins@commerce.ubc.ca

Title: "Multi-Location Combined Pricing and Inventory Control"

Author(s): Awi Federgruen, Aliza Heching

Abstract: We consider the problem of managing inventories and dynamically adjusting retailer prices in distribution systems with geographically dispersed retailers.  More specifically, we analyze the following single item, periodic review model.  The distribution of demand in each period, at a given retailer, depends on the item’s price according to a stochastic demand function.  These stochastic demand functions may vary by retailer and by period.  The replenishment process consists of two phases: in some or all periods, a distribution center may place an order with an outside supplier.  This order arrives at the distribution center after an “order leadtime" and is then, in the second phase, allocated to the retailers.  Allocations arrive after a second “allocation leadtime.”

We develop an approximate model which is tractable, and in which an optimal policy of simple structure exists.  The approximate model thus provides analytically computable approximations for system-wide profits and other performance measures.  Moreover, the approximate model allows us to prove how various components of the optimal strategy (i.e., prices and order-up-to levels) respond to shifts in the model parameters, e.g., to shifts in the retailers’ demand functions.  In addition, we develop combined pricing, ordering and allocation strategies and show that the system’s performance under these strategies is well gauged by the above approximations.  We use this model to assess the impact of different types of geographic dispersion on systems with dynamically varying prices and how different system parameters (e.g., leadtimes, coefficients of variation of individual retailers’ demand, price elasticities) contribute to the impact.  Similarly, we use the model to gauge the benefits of coordinated replenishments under dynamic pricing, and how these benefits increase as the allocation decisions of the system-wide orders to individual retailers are postponed to a later point in the overall replenishment leadtime.

We report on a comprehensive numerical study based on date obtained from a nationwide department store chain.

The Consulting Senior Editor was Evan Porteus.

The manuscript was submitted on March 31, 2000. The average review cycle time was 49 days.

Corresponding author: Awi Federgruen, Columbia University, Graduate School of Business, Uris Hall, New York, NY 10027-6900 Phone: (212) 854-6084,  E-mail: af7@columbia.edu

Title: "Performance Analysis of Split-Case Sorting Systems"

Author(s): Russell Meller, Eric Johnson

Abstract: Abstract: Split-case sorting systems are used in many retail supply chains where items must be distributed in less-than-case quantities such as orders shipped directly to customers by catalogers and dot.com retailers or shipments made in less-than-case quantities from a distribution center to a retail store.  In general, such systems are used in order-packing systems where the same item is needed for multiple orders.  Items are inducted into a circular sorting conveyor system one unit at-a-time and then delivered to an order-packing bin designated for a particular customer or retail store.  In these systems, the number of orders sorted at one timeis always less than or equal to the number of packing bins, thus, the conveyor is never blocked and no recirculation of items occurs.  We develop analytical performance models that incorporates the stochastic operating conditions faced by these systems.  Our model allows system designers to predict the sorting capacity for different system configurations.  More importantly, we use the model to develop insights into the system design and operation. 

The Consulting Senior Editor was Joseph L. Thomas

The manuscript was submitted on November 16, 2001. The average review cycle time was 46 days.

Corresponding author: Russell Meller, Virginia Polytechnic Institute and State University, Department of Industrial & Systems Engineering, Blacksburg, VA 24061 Phone: (540) 231-8976,  E-mail: rmeller@vt.edu

Title: "On Throughput Maximization in Constant Travel-Time Robotic Cells"

Author(s): Suresh Sethi, Chelliah Sriskandarajah, Milind Dawande

Abstract: We consider the problem of scheduling operations in bufferless robotic cells that produce identical parts.  The objective is to find a cyclic sequence of robot moves that minimizes the long-run average time to produce a part, or equivalently, maximizes the throughput rate.  The robot can be moved in simple cycles that produce one unit or in more complicated cycles that produce multiple units.  Since 1-unit cycles are easiest to understand, implement and control, they are widely used in industry.  We analyze 1-unit cycles for a class of robotic cells called constant travel-time robotic cells.  We obtain a polynomial time algorithm for finding an optimal 1-unit cycle.  Moreover, we complete a structural analysis of the class of 1-unit cycles, and gain some insights that have proved valuable in our ongoing efforts to study multi-unit cyclic solutions.

Constant travel-time robotic cells are used in real manufacturing operations that the authors have encountered during their interactions with companies.  The results and the analysis in this paper offer practitioners (i) a tool to experiment with and study the design of a proposed robotic cell during a prototyping exercise, (ii) a lower bound on the throughput of a robotic cell to help them make an informed assessment of the ultimate productivity level and (iii) a benchmark throughput level (for comparison purposes) for robotic cells whose operations differ slightly from those discussed in this paper.

Key words and phrases:  manufacturing, robotic cell, identical parts, polynomial time algorithm

The Consulting Senior Editor was Suresh Chand.

The manuscript was submitted on August 23, 2001. The average review cycle time was 59 days.

Corresponding author: Suresh Sethi, University of Texas at Dallas, School of Management, Richardson, TX 75083-0688 Phone: (972) 883-6245,  E-mail: sethi@utdallas.edu

Title: "Newsvendor Networks: Dynamic Inventories and Capacities Management with Discretionary Pooling"

Author(s): Jan Van Mieghem, Nils Rudi


We present a rather general newsvendor network model as a unifying framework to study problems of stochastic capacity investment and inventory procurement. The distinguishing feature of this model is that those decisions are locked in before demand uncertainty is resolved while some managerial discretion remains ex-post during the input-output transformation. This discretion is captured by introducing non-basic activities that model pooling effects stemming, for example, from flexibility, commonality, substitution or transshipment. Newsvendor networks are characterized by linear revenue and cost structures and a linear production technology.

This paper establishes dynamic optimality of inventory and capacity policies for the lost sales case. De-pending on the non-basic activities, this also extends to the backordering case. Analytic and simulation-based solution techniques and graphical interpretations are presented and illustrated by a comprehensive example that features input substitution and a flexible processing resource.

The Consulting Senior Editor was Fangruo Chen.

The manuscript was submitted on August 20, 2001. The average review cycle time was 78 days.

Corresponding author: Jan Van Mieghem, Northwestern University, Kellogg Graduate School of Management, Evanston, IL  60208-2099 Phone: ((847) 491-5481,  E-mail: vanmieghem@kellogg.nwu.edu

Copyright ©1996, Manufacturing & Service Operations Management,
Krannert Graduate School of Management, Purdue University