Professional Documents
Culture Documents
Zeynep Aksin
zaksin@ku.edu.tr
Hamptonshire Express
Anna has a degree from journalism & operations
research
She has started a daily newspaper in her hometown
She used a leased PC: lease cost $10 per day
A local printer prints newspapers at 0.20 per copy
Sales the next day between 6 am and 10 am
Newsstand rental $30 per day
Express sold to customers at $1 per copy
Copies not sold by 10 am are discarded
Anna estimates daily demand to be distributed
N(500,100)
2
Question 1
Optimal stocking quantity?
Profit at this stocking quantity?
Question 2
How many hours should she invest daily in
the creation of the profile section? Assume
the opportunity cost of her time is $10 per
hour.
Compare optimal profits to previous
scenario
0.8 * 50 * ( h 1 h )
12
16.56
40
23
12.71
34
10.71
45
9.44
i* = 684
E[Profit] =
371.33
7
Question 3
Assuming h=4 try to determine the optimal stocking
quantity for Ralph?
Why is this quantity different than the one in Question 2?
Now vary h in spreadsheet 3c which calculates the
optimal newsboy quantity for the differentiated channel,
i.e. to maximize Ralphs profit.
How would changing the transfer price from the current
value of 0.8 impact Anns effort level and Ralphs
stocking decision? (Spreadsheet 3d)
Compare an integrated (centralized) firm to a
differentiated (decentralized) one.
9
10
ralph
$ 200
anna
150
100
50
0
transfer price
11
Contracts
Specifies the parameters within which a buyer
places orders and a supplier fulfills them
Example parameters: quantity, price, time, quality
Double marginalization: buyer and seller make
decisions acting independently instead of acting
together; both of them make a margin on the same
sale gap between potential total supply chain
profits and actual supply chain profits results
Buyback contracts can be offered that will increase
total supply chain profit
14
Returns policies
Rationale: set buyback price b so that
w b (retailer
c s cost structure
cost structure)
r b =r supply
s
Supplier can use both w and b
Supplier is bundling insurance with the good
15
Example
Breakdown of profits under a
buyback scheme
400
350
300
250
$ 200
150
100
50
0
ralph
anna
buyback price
16
18
Video sales
Hollywood: video rentals and sales $20B
business, and largest source of revenue
Rentals slipping
Competition from direct services
Customer dissatisfaction (20% cannot rent
video they want on a typical trip)
Revenue Sharing
Reduce wholesale price in return for a share
of revenues
Encourages retailers to stock more
$60 a tape
$3/rental rent each tape 20 times to break
even
Revenue sharing
When does it work?
marginal cost of increasing inventory low
administrative burden low
for price-sensitive products
22
Other Contracts
Quantity Flexibility Contracts
Supplier provides full refund for returned
items as long as the number of returns is no
larger than a certain quantity
25
Information-based Solutions
Measure more variables to reduce moral
hazard; e.g. scan-based promotions,
mystery shoppers
Reduce pre-contact private information
Credit rating companies, personal contacts,
long term contracts
26
Trust-based solutions
Use of intermediaries
Reputation
Relationship contracts
Defining process for renegotiation
27
On Trust..
Can only trust people/firms to do
whats in their best interest
Align incentives/procedures so
that agent responses lead to revenue
growth/cost reduction for all
Have mechanism to share
gains
28