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● Joint Pricing and Inventory Decisions for Substitutable Products

1. 일 시 : 2024. 02. 23 (금) 16:00

2. 강의 대상 : 4단계 BK21 사업 참여대학원생 및 재학생

3. 강의 장소 : 14호관 414호 세미나실

4. 강사 : Sangjo Kim

* Abstract: A pervasive problem for retailers is to make assortment and inventory procurement decisions of substitutable products with the goal of maximizing expected profits over a pre-defined selling horizon. Multiple inventory replenishments are not allowed. This problem is challenging because of demand substitution effects that are driven initially by the assortment decision and later by stockouts. We propose an intuitive and easy-to-implement heuristic based on the sample average approximation method coupled with the Markov chain approximation to discrete choice modeling. We show that our heuristic is asymptotically optimal, and quite effective even in the non-asymptotic regime. Our heuristic exhibits very small optimality gaps and outperforms, sometimes dramatically, traditional newsvendor solutions that ignore dynamic substitution effects. Our numerical analysis also reveals that the newsvendor heuristic may perform quite well when the assortment is properly chosen and demand variability is relatively low. These managerial insights help decide when to employ the traditional newsvendor solution. We also look into endogenous pricing and show that even a simple heuristic can significantly enhance profits if prices can be adjusted sufficiently often. Another finding is that price flexibility mitigates the need for safety stocks to the point that not hedging inventories is often better than hedging them.

* Bio: Sangjo Kim is an assistant professor at the College of Business of Shanghai University of Finance and Economics and holds a Ph.D. in Logistics and Supply Chain Management from MIT-Zaragoza International Logistics Program. He has published in a top-tier research journal Production and Operations Management and is also working on an article that has been invited for a major revision in Management Science. His main research interest is in understanding the underlying economic complementarity and the corresponding structure of optimal policies for joint supply chain operations such as inventory replenishment, pricing, bundling, assortment, and assembly, especially when a seller offers a mix of multiple economic complements and substitutes to the market.