Lucy Gongtao Chen

The Impact of a Target on Newsvendor Decisions

Goal achieving is a commonly observed phenomenon in practice, and it plays an important role in decision making. In this paper, we investigate the impact of a target on newsvendor decisions. We take into account the risk and model the effect of a target by maximizing the satisficing measure of a newsvendor’s profit with respect to that target. We study two satisficing measures: (i) conditional value at risk (CVaR) satisficing measure that evaluates the highest confidence level of CVaR achieving the target; (ii) entropic satisficing measure that assesses the smallest risk tolerance level under which the certainty equivalent for exponential utility function achieves the target. For both satisficing measures, we find that the optimal ordering quantity increases with the target level. We determine an optimal order quantity for a target-based newsvendor and characterize its properties with respect to, for example, product’s profit margin.

Behavioral Tendencies in Newsvendor Decision Making: Capturing the Chinese Perspective

After many decades on focusing only on quantitative approaches for making decisions in manufacturing and supply chain management, researchers in operations management have recently acknowledged the importance of understanding the human behavior tendencies underlying these decisions. The result is a new stream of research in operations management focused on experiments using human subjects. However, most of these experiments were conducted in the US and Europe with the subject pool (students as well as practitioners) with western cultural and educational backgrounds. As the students and practitioners in China are culturally and educationally different from their western counterparts, it is conceivable that their behavioral tendencies are very different. Given that a large portion of the world’s industrial output comes from China, an understanding of the behavioral tendencies specific to those geographical regions is essential to achieve significant efficiency gains in the world economy. We compare results from experiments conducted in the US and China and observe that Chinese decision makers (i) ask a lot more questions before reaching their decision indicating that they are more worried about making the wrong decision; (ii) are more frequently able to come up with a new number as their decision whereas the American decision makers tend to use one of the given numbers as their decision; and (iii) are more cognizant of salvage values and as a result order more than the American decision makers.

Simulation of scheduled ordering policies in distribution supply chains

In this paper we study a decentralized distribution supply chain with one supplier and many newsvendor-type retailers that face exogenous end-customer demands. Using total supply chain cost as our primary measure of performance, we compare two scheduled ordering policies - Balanced ordering and Synchronized ordering - with the traditional newsvendor-type ordering behavior. Via the use of simulation, we evaluate the effectiveness of the two scheduled ordering policies, and identify how the performance of the scheduled ordering policies changes with different supply chain parameters, such as the number of retailers, the suppliers expediting cost, the suppliers capacity limit, etc.

On Dynamic Decision Making to Meet Consumption Targets

We investigate a dynamic decision model that facilitates a target-oriented decision maker in regulating her risky consumption based on her desired target consumption level in every period in a finite planning horizon. We focus on dynamic operational decision problems of a firm where risky cash flows are being resolved over time. The firm can finance consumption by borrowing or saving to attain prescribed consumption targets over time. To evaluate the ability of the consumption in meeting respective targets, we propose the consumption shortfall risk (CSR) criterion, which has salient properties of attainment content, starvation aversion, subadditivity, and positive homogeneity. We show that if borrowing and saving are unrestricted and their interest rates are common, the optimal policy that minimizes the CSR criterion is to finance consumption at the target level for all periods except the last. For general convex dynamic decision problems, the optimal policies correspond to those that maximize an additive expected utility, in which the underlying utility functions are concave and increasing. Despite the interesting properties, this approach violates the principle of normative utility theory and we discuss the limitations of our target-oriented decision model.

Individual and cultural differences in newsvendor decision making

Purpose The purpose of this paper is to investigate cultural and individual differences in newsvendor decision making. Design/methodology/approach The online experiment, programmed in the PHP scripting language, had 107 participants: local managers of four large, well-known and supply chain–intensive firms in China (Lenovo, Shenhua, CMST and GM). Findings The authors find that, as compared with American subjects, Chinese subjects engage in more demand chasing, order quantities that are closer to the mean demand, have a lower expected profit and exhibit greater variance in order quantities. However, these observations may not hold when the cross-cultural comparison is conducted for each pair of ethnic subgroups whose members have the same cognitive reflection test score, a measure of individual differences. Moreover, cultural differences also affect how individual differences manifest in newsvendor decisions. Practical implications The authors findings have important implications for employee selection, training and management in any cross-cultural business environment. Originality/value Little attention has been paid, in the behavioural operations literature, to individual differences and how they interact with culture. This paper is the first to examine the interaction effects of cultural and individual differences in newsvendor decisions, and it highlights an important research area that is currently understudied in operations management.

Co-opetition in Service Clusters with Waiting-Area Entertainment

Unoccupied waiting feels longer than it actually is. Service providers recognize this psychological effect and commonly offer entertainment options in waiting areas. To alleviate the cost of offering these entertainment options, many service providers choose to cooperate in this investment while competing against each other on other service dimensions, a practice known as “co-opetition.” In this paper, we develop a parsimonious model of co-opetition in service industries with entertainment options. By comparing the case of co-opetition with two benchmarks (monopoly, and duopoly competition), we demonstrate that a co-opeting service provider can sometimes achieve a profit higher than that in the monopoly setting, especially when the capacity is costly, entertainment options are inexpensive, or customers are highly sensitive to waiting. Our numerical study suggests that on average, the profit under co-opetition can be 7.65% higher than that under monopoly, with a maximum of 77.40%. Such benefits, however, are not guaranteed. We show that as much as coopetition facilitates cost sharing, it also intensifies price competition. In designing the cost-allocation scheme, the pursuit of fairness may backfire and lead to even lower profits than those under duopoly competition. We further show that as the intensity of price competition increases, contrary to what one would expect, both service providers choose to charge higher service fees, albeit while providing higher entertainment levels.

Saishunkan: Rejuvenation by Living in Harmony with Nature (and Customers)

This chapter tells the story of a thriving cosmetic company, Saishunkan Co. Limited, and how it leverages on Ta-Q-Bin’s un-parallel reach in Japan to build up its delivery system, riding on its unique and equally marvellous tele-marketing system.