Vipul Agrawal

Risk Intermediation in Supply Chains

In some supply chains, retailers are relatively small and averse to taking risk. In such a situation, traditional methods of contracting, that typically assume risk neutrality on retailers, might not suffice to maximize the seller’s/distributor’s expected profit. We present tools for analyzing and solving such a problem from the viewpoint of a (risk-neutral) seller/distributor. We present two types of models that can be used to create contracts, one set in a discrete setting and the other in a continuous setting. In both settings, individual retailers are characterized with different degrees of risk aversion. We first explain in the discrete setting how the varying degrees of risk aversion present hurdle for the design of a uniform contract for all retailers. We then show how to mitigate the problem using ideas from the theory of mechanism design. We offer a simple solution to the contract design problem and show how it can be easily implemented. We next show that in the continuous setting in which the distribution of retailers is continuous, which could be viewed as a limiting case of the discrete setting, the contract design problem actually simplifies. In this continuous setting, we show that it becomes relatively easy to design contracts and establish their optimality from the seller’s/distributor’s viewpoint. We conclude the chapter with a summary of problems that are still open in this area.

Service parts logistics: a benchmark analysis

This paper summarizes the results of a benchmark study focusing on after-sales service logistics systems for technologically complex high-value products, i.e., in the computer industry. Current industrial practices and trends in service logistics operations are reported on. Specific data on costs, revenues, service measures, control policies, and distribution strategies were collected and used to define best practice performance. Analysis methodologies to support cross-sectional comparisons and causal factors are discussed.

Dynamic balancing of inventory in supply chains

Abstract We consider the dynamic version of the classic problem of allocation of inventories to a set of retailers to rectify the imbalance of inventories amongst them. While most research is focussed on analyzing different allocation strategies with a predetermined time of shipment (static policy), we investigate the benefit of using real time demand (inventory) information to schedule rebalancing shipments in a retail network. We model the dynamic rebalancing problem that has two decisions, the timing of the balancing shipments and determination of the new stocking levels at the retailers, as a dynamic program (DP). We obtain structural properties for the optimal allocation, rebalancing and timing strategies. We also present conditions under which a greedy heuristic to decide how much to ship from one retailer to another is optimal. The DP for determining the optimal timing and quantity of shipments has a very large state space. We present an algorithm to solve this DP efficiently. We also provide a heuristic solution procedure to the dynamic problem that performs very close to optimal. Numerical results show that dynamic allocation policies can lead to substantial benefits over the static policy especially in systems in which the starting inventories at the retailers are balanced or when high service levels are required.

Distribution Free Bounds for Service Constrained (Q, r) Inventory Systems

A classical and important problem in stochastic inventory theory is to determine the order quantity (Q) and the reorder level (r) to minimize inventory holding and backorder costs subject to a service constraint that the fill rate, i.e., the fraction of demand satisfied by inventory in stock, is at least equal to a desired value. This problem is often hard to solve because the fill rate constraint is not convex in (Q;r) unless additional assumptions are made about the distribution of demand during the lead-time. As a consequence, there are no known algorithms, other than exhaustive search, that are available for solving this problem in its full generality. Our paper derives the first known bounds to the fill-rate constrained (Q;r) inventory problem. We derive upper and lower bounds for the optimal values of the order quantity and the reorder level for this problem that are independent of the distribution of demand during the lead time and its variance. We show that the classical economic order quantity is a lower bound on the optimal ordering quantity. We present an efficient solution procedure that exploits these bounds and has a guaranteed bound on the error. When the Lagrangian of the fill rate constraint is convex or when the fill rate constraint does not exist, our bounds can be used to enhance the efficiency of existing algorithms. c 2000 John Wiley & Sons, Inc. Naval Research Logistics 47: 635{656, 2000

Analysis of Distribution Strategies in the Industrial Paper and Plastics Industry

The costs, benefits and strategic role of intermediate echelons in distribution networks are not well understood in many industries. This paper describes a study of such multilevel systems in the industrial paper and plastics industry. We quantify the impact of redistributors, who buy products from manufacturers and sell them exclusively to other distributors. The methodology was applied to an industry-wide study. We derived statistics based on optimal distributor policies for channel choice and stock control. Based on our analysis, we found that effective use of redistribution, in conjunction with these policies, has the potential to generate savings of

Web Based Capacity Allocation Strategies for Customers with Heterogeneous Preferences

446 million for the industry.

Impact of Uncertainty and Risk Aversion on Price and Order Quantity in the Newsvendor Problem

We study different mechanisms for the pricing and allocation of capacity to customers with heterogeneous and unknown preferences. The mechanisms we study include posting of prices, auctions, with and without the possibility of resale. We compare the performance of each mechanism with the optimal selling procedure in terms of expected sellers profit and efficiency. We also discuss the feasibility of web based implementation.