Prafulla Joglekar

A closer look at the returns and risks of pharmaceutical R&D

This study assesses the profitability of researching and developing new chemical entities (NCEs). A 36 year investment horizon is projected, based on a survey of R&D costs and on extensive U.S. sales data. Analysis is after taxes. The average NCE produces a real internal rate of return of 6.1% and a net present value of

An exact formulation of inventory costs and optimal lot size in face of sudden obsolescence

76 million in 1976 dollars. Break even with an opportunity investment in corporate bonds occurs on average after 12 years of sales. Risk is apparent in that after 24 years of sales some two-thirds of NCEs return no more than the bonds do. The median NCE, not recovering average R&D costs, produces a negative return. Alternative assumptions are tested. Results are highly sensitive to drug price increases and early replacement by generics.

A comprehensive set of models of intra- and inter-organisational coordination for marketing and inventory decisions in a supply chain

Recently, approximate formulas for determining the relevant total costs and the optimal lot size in face of sudden obsolescence were proposed. In this paper, we provide an exact formulation of the relevant costs which, when minimized, give the true optimal lot size. The estimation errors of the approximate model are significant in some situations, and the use of our exact model is recommended.

Volume discount decisions : Wealth maximization or EOQ approach ?

This paper presents a set of eight models of coordination for pricing and order quantity decisions in a supply chain consisting of one manufacturer and one retailer of a product with price sensitive demand. In many organisations, the marketing department makes the pricing decisions, whereas the operations department makes the order quantity decisions. Yet, many researchers have suggested that organisations can benefit from intra-organisational coordination for these two decisions. Similarly, in a typical supply chain, the manufacturers decisions are not coordinated with the retailers decisions. So far, many researchers have suggested that a supply chain can benefit from the coordination of the order quantity decisions of the manufacturer and the retailer. Others have recommended supply chain coordination for pricing decisions. Thus, there are a number of possibilities for intra- and inter-organisational coordination (or a lack of coordination) for the pricing and order quantity decisions in a supply chain. We study each possibility and compare its advantages and disadvantages relative to other coordination possibilities. The analysis leads to interesting and, at times, paradoxical results. For example, we find that, in the absence of inter-, intra-organisational coordination by either the manufacturer or the retailer, or both, leads to a reduction in the supply chains profit compared to its profit from a no-coordination situation. As would be expected, complete intra- and inter-organisational coordination results in the best profit for the supply chain. However, the supply chains profit from inter-organisational coordination for pricing decisions alone is only marginally smaller than the profit from complete coordination. Hence, considering the tangible and intangible costs of a coordination mechanism, we recommend that a supply chain should coordinate its pricing decisions, but should not indulge in the coordination of its order quantity decisions. An extensive sensitivity analysis confirms our major findings and yields interesting insights into the relative advantages and disadvantages of various coordination possibilities in marketing and inventory-related decisions.

Comments on: A comparative analysis for determining optimal price and order quantity when a sale increases demand

A recent paper finds that when volume discounts are available, in some cases, reliance on the Economic Order Quantity (EOQ) model can induce purchasers to make wealth reducing decisions, and the Present Value (PV) approach should be preferred. While this finding is theoretically correct, the magnitudes of wealth reductions suggested by the papers numerical examples seem to be questionable. Furthermore, the paper also finds that, in some other cases, a purchaser using the EOQ approach realizes a net increase in current wealth compared to a purchaser using the PV approach. Logic suggests that such a finding cannot be correct, since by its very definition, it is the PV approach that seeks to maximize the current wealth. We offer an alternative frame of comparison and a modified model to show that, under the papers assumptions, the EOQ approach can never realize a net increase in current wealth compared to the current wealth generated by the PV approach. On the other hand, we also show that when typical values of the relevant parameters prevail, the additional costs imposed by the EOQ approach are not significant. Finally, we suggest that insofar as the PV approach requires greater administrative costs to implement, it may even be counterproductive to the goal of wealth maximization.

Cost-Benefit Studies of Health Care Programs Choosing Methods for Desired Results

Although the net present value (NPV) criterion is theoretically the correct approach to developing optimal inventory policies, in the classical EOQ case, the average profit criterion generates solutions that are practically identical to those resulting from the NPV criterion. Nevertheless, a recent paper suggests that, when the demand for a product is price-elastic and a wholesaler offers a one-time-only price discount, use of the average profit criterion may obtain policies that are drastically suboptimal compared to the policies obtained by using the NPV criterion. We show that this suggestion is based on inaccurate models and inconsistent comparisons. Although in cases of large one-time-only discounts, there may be significant differences in the policies and consequences resulting from the two criteria, such large discounts are unrealistic. Furthermore, the larger the discount, the less practicable are the optimal order quantities based on either one of these criteria. Thus, in most real-life situations, the use of the average profit criterion does not result in serious suboptimization. In these situations, what may be important is not whether a retailer uses the NPV criterion or the average profit criterion, but whether the retailer can and does implement the optimal decisions resulting from the use of either criterion.

Continuously increasing price in an inventory cycle: an optimal strategy for E-tailers

This article summarizes the results of a critical review of several cost benefit analyses (CBA) of health care programs. With pertinent examples, it is demonstrated that the results and conclusions of a study depend upon the assumptions and methods underlying the measurement of costs and benefits in a CBA. Given the incentives for an analyst to comply with desires of his sponsor, and given the scope of the choice available to an analyst among alternative assumptions and methods, it seems quite possible that desired results often dictate the assumptions and methods chosen. It is recommended that apolicy maker should suspect an advocacy in the results and conclusions of every CBA. If CBAs are to be a true decision aid, a policy maker ought to obtain several of them, each of which assesses the costs and benefits of a given action plan using assumptions and methods substantially different from the other.

Conditions for government support of private research and development

Operations researchers have always assumed that when a products unit cost is constant and its demand curve is known and stationary, a retailer of the product would find it optimal to replenish the inventory with a fixed quantity and to sell the product always at a fixed price. We present, with proof, a model that shows that, in such a case, an e-tailer is better off using a continuously increasing price strategy than using a fixed price strategy within each inventory cycle. Sensitivity analysis shows that this strategy is particularly profitable when demand is highly price sensitive and the inventory ordering and carrying costs are high.

Comments on “A quantity discount pricing model to increase vendor profits”

Abstract In a recent paper, Brockhoff and Warschkow (1993) attempt to extend Joglekar and Hamburgs work under alternative behavioral assumptions (Joglekar and Hamburg, 1986). Brockhoff and Warschkow mainly obtain results that are opposite to Joglekar and Hamburgs findings. Unfortunately, as shown below, Brockhoff and Warschkows model is flawed because: (1) it is inconsistent with Joglekar and Hamburgs assumption that firms are individually rational, and (2) it misrepresents the concept of Pareto optimality. Consequently, Brockhoff and Warschkows conclusions cannot be seen as valid.