Gopalan Srinivasan

Retailer's Response to Alternate Manufacturer's Incentives Under a Single-Period, Price-Dependent, Stochastic-Demand Framework*

This article considers the joint development of the optimal pricing and ordering policies of a profit-maximizing retailer, faced with (i) a manufacturer trade incentive in the form of a price discount for itself or a rebate directly to the end customer; (ii) a stochastic consumer demand dependent upon the magnitude of the selling price and of the trade incentive, that is contrasted with a riskless demand, which is the expected value of the stochastic demand; and (iii) a single-period newsvendor-type framework. Additional analysis includes the development of equal profit policies in either form of trade incentive, an assessment of the conditions under which a one-dollar discount is more profitable than a one-dollar rebate, and an evaluation of the impact upon the retailer-expected profits of changes in either incentive or in the degree of demand uncertainty. A numerical example highlights the main features of the model. The analytical and numerical results clearly show that, as compared to the results for the riskless demand, dealing with uncertainty through a stochastic demand leads to (i) (lower) higher retail prices if additive (multiplicative) error, (ii) lower (higher) pass throughs if additive (multiplicative) error, (iii) higher claw backs in both error structures wherever applicable, and (iv) higher rebates to achieve equivalent profits in both error structures.

An Assessment of the Measurement Properties of the Human Development Index

One of the more important determinants of the competitiveness of a nation is the quality of its human capital. The Human Development Index (HDI) is the most widely used yardstick of human development. It measures human development for all the countries of the world, through the use of three factors – longevity, knowledge and GDP measured in purchasing power. This paper evaluates HDIs contribution towards measuring the quality of the human capital component of a nations competitiveness. Two primary issues under study are the HDIs information properties vis-a-vis its components and its measurement properties as an index. The primary conclusion of the study is that the HDI carries useful information about a countrys current development, but not about the future level of development. Hence, further refinements in its construction as well as additional theoretical support as a quantitative measure are needed.

One time only incentives and inventory policies

Abstract This paper presents a review of the literature available on inventory policies under incentives on a one time only basis. It is quite a common industrial practice to offer special incentives to motivate the buyer to order in larger than regular order quantities. Such special deals are available for a limited time only. The literature on inventory policies under conditions of incentives has been classified by the nature of incentives such as price discount and credit period. A situation of announced price increase which is very similar to price discount is also reviewed. The policy implications of various scenarios are highlighted and areas of future research are identified.

Pricing, rebate, advertising and ordering policies of a retailer facing price-dependent stochastic demand in newsvendor framework under different risk preferences

This paper evaluates the pricing and ordering policies of risk-neutral, risk-averse and risk-seeking newsvendor-type retailers facing price-dependent stochastic demand and several sales-promotion policies, namely pricing, rebates and advertising. Optimal pricing and ordering policies are obtained for the iso-elastic demand function and for additive and multiplicative demand-error structures. Performance is measured by the risk-adjusted expected profit and evaluated across risk preferences. Pricing, rebate and advertising, in that order, are the most profitable sales-promotion policies. The more risk averse the retailer, the lower its profit and the more it favors multiple promotion policies.

A Purchasing Framework for B2B Pricing Decisions and Risk‐sharing in Supply Chains*

This paper presents a common modelling structure for (i) the implementation of operational policies by individual purchasing managers of risk-sharing agreements among supply-chain partners, and (ii) the integration of brick and click purchasing policies in a B2B. The problem of price uncertainty created within these two environments is modelled as a stochastic repetitive-sales problem, applicable to any probability distribution. The model identifies sufficient conditions for regenerative ordering cycles, which allows for the use of the renewal reward theorem. The end result is a two-price purchasing policy, which may substantially ease implementation problems across a global corporations purchasing managers world-wide and across B2B markets.

Manufacturer's pricing strategies in a single-period framework under price-dependent stochastic demand with asymmetric risk-preference information

This paper considers a single-period problem designed to analyse the pricing strategy of a manufacturer who does not possess full information about the retailers risk-preferences. The retailer, who faces a price-dependent stochastic demand, is a maximizer of the risk-adjusted expected profit, rather than of the expected profit. The paper first evaluates the implication of the various risk-preferences of the retailer on the manufacturers policy under a full-information scenario. Then, it considers a partial information scenario and computes the expected value of perfect information. Finally, it assesses the impact on the manufacturers profit of sharing the retailers risk through the introduction of a buyback policy. Linear or iso-elastic demand functions and additive or multiplicative demand error structures capture the demand distributions. Analytical results as well as numerical examples illustrate the main features of the model.

The Human Development Index Adjusted for Efficient Resource Utilization

The human development index (HDI) developed by the United Nations Development Programme (UNDP 2003) is computed as the average of three equally weighted outcome measures or indices of human development: life expectancy (LI), educational attainment (EI) and income (WI). However, this computational process is independent of the resource endowment being devoted by each country to the achievement of the three outcome levels (Raab et al. 2000). Hence, it is conceivable that two different countries consume vastly different amount of resources in achieving the same, say, LI, whereas this difference in the efficiency of resource utilization is not reflected in the HDL The purpose of this chapter is to address this efficiency issue. Here, the term efficiency corresponds to the concept of Pareto-Koopmans efficiency in economics (Varian 1999). Thus, it measures the ability of each country to transform the minimum possible units of its own resources into the maximum possible levels of the three outcomes. As a result, a country or decision-making unit (DMU) ‘is fully efficient if and only if it is not possible to improve any input or output without worsening some other input or output’ (Cooper et al. 2000: 45). This definition is operationalized through the development of a benchmarking model, where each country’s three HDI outcome measures, LI, EI and WI, are evaluated relative to an efficient or ‘best-practice’ production frontier, formed by the benchmarking (that is, most efficient) countries.

The effectiveness of manufacturer vs. retailer rebates within a newsvendor framework

This paper studies the impact of direct rebates to the end customer from the manufacturer and/or from the retailer upon the profitability and effectiveness of the policies of both channels. Effectiveness is measured by the ratio of the retailer’s to the manufacturer’s profits and by the sum of the profits for the two parties across scenarios wherein at least one of the parties offers a rebate. The main result is to prove analytically the conditions under which either all three scenarios are equally profitable or the retailer-only rebate policy is dominant. Another important result is to illustrate the likelihood that the manufacturer is able to coordinate the supply chain, by the appropriate choice of its pricing and rebate policies, thereby inducing the retailer to do likewise with its associated best pricing, ordering and rebate policies. Finally, numerical examples highlight the main features of the paper.

A retailer's decision process when anticipating a vendor's temporary discount offer

This paper considers a profit-maximizing retailers decision process when anticipating a vendors offer of a temporary sale at a reduced price. The retailer is confronted with anticipation and discount periods of unknown length, within which to develop simultaneously the expected profit-maximizing ordering policy needed to purchase the items at the reduced price and the expected profit-maximizing pricing policy to dispose of the temporary sale also at a reduced price. The resulting policies are valid for any probability distribution used to model the uncertainty in the length of the discount period. Numerical examples illustrate the main features of the models.

Special sales with guaranteed minimum duration but uncertain termination date

Abstract This paper examines a retailer’s response to a vendor’s trade promotion, which is guaranteed to last some fixed length of time, followed by an additional (uncertain) period of time, “while supplies last”. At issue is the development of a general-special-sales model under uncertainty, which produces profit-maximizing policies for a retailer during both the deterministic and the stochastic portions of the special sale period. The search for the optimal policies is substantially simplified by showing that (i) the total profit for the retailer’s response problem may be written as a function only of the ending inventory of the deterministic period; (ii) the feasible values of the ending inventory can be placed into three mutually exclusive value ranges; (iii) for each region, an optimal ending inventory is obtained; and (iv) only these three values of the ending inventory are candidates for optimality. A numerical example illustrates the main features of the solution method.