SMARTech Collection: Operations Management

Revenue Management and the Analytics Explosion: Perspectives from Industry Experts

Thu, 10 Jan 2008 22:58:59 GMT

Title: Revenue Management and the Analytics Explosion: Perspectives from Industry Experts

Authors: Ferguson, Mark E.; Garrow, Laurie

Abstract: On October 2-3, 2007, the third annual Revenue Management and Price Optimization conference was held at the Georgia Institute of Technology. The conference explored how multiple factors, including fragmentation of customer markets, transparency in markets, and globalization have spurred a transformation from intuition-based to analytical-based decision making across many industries. Panelists included representatives from industries spanning airline, hotel, gaming, grocery, jewelry, package delivery, consumer goods, manufacturing, and consulting. This paper summarizes key discussions that emerged from the conference and highlights success stories portrayed in keynote addresses given by James Whitehurst, former chief operating office of Delta Air Lines; Rick Campana, Vice President of Corporate Marketing of the United Parcel Service; and, Chuck Neville, Executive Director of Finance of General Motors Service and Parts Operations.

Multi-Period Remanufacturing Planning With Uncertain Quality of Inputs

Fri, 11 Jan 2008 02:57:53 GMT

Title: Multi-Period Remanufacturing Planning With Uncertain Quality of Inputs

Authors: Ferguson, Mark E.; Denizel, Meltem; Souza, Gilvan C.

Abstract: In this paper we consider production planning of remanufactured products when inputs have different and uncertain quality levels, and there are capacity constraints. This situation is typical of most remanufacturing environments, where inputs are product returns (also called cores). Production (remanufacturing) cost increases as the quality level decreases, and any unused cores may be salvaged at a value that increases with their quality level. Decision variables include, for each period and under a certain probabilistic scenario, the amount of cores to grade, the amount to remanufacture for each quality level and the amount of inventory to carry over for future periods for un-graded cores, graded cores, and finished remanufactured products. Our model is grounded with data collected at a major OEM that also remanufactures. We formulate the problem as a stochastic program, and illustrate how the deterministic version of the problem yields solutions that cannot be implemented in practice. The stochastic program, although a large linear program, can be solved easily using Cplex. We provide a numeric study to generate insights into the nature of the solution.

Bid-Response Models for Customized Pricing (Ed. 2)

Fri, 11 Jan 2008 02:47:17 GMT

Title: Bid-Response Models for Customized Pricing (Ed. 2)

Authors: Ferguson, Mark E.; Agrawal, Vishal

Abstract: In this paper, we study pricing situations where a firm provides a price quote in the presence of uncertainty in the preferences of the buyer and the competitive landscape. We introduce two customized-pricing bid-response models used in practice, which can be developed from the historical information available to the firm based on previous bidding opportunities. We show how these models may be used to exploit the differences in the market segments to generate optimal price quotes given the characteristics of the current bid opportunity. We also describe the process of evaluating competing models using an industry dataset as a test bed to measure the model fit. Finally, we test the models on the industry dataset to compare their performance and estimate the percent improvement in expected profits that may be possible from their use.

Relicensing as a Secondary Market Strategy

Fri, 11 Jan 2008 02:35:42 GMT

Title: Relicensing as a Secondary Market Strategy

Authors: Ferguson, Mark E.; Oraiopoulos, Nektarios; Toktay, L. Beril

Abstract: Secondary markets in the Information Technology (IT) industry, where used or refurbished equipment is traded, have been growing steadily. For Original Equipment Manufacturers (OEMs) in this industry, the importance of secondary markets has grown in parallel, not only as a source of revenue, but also because of their impact on these firms' competitive advantage and market strategy. Recent articles in the press have severely criticized some OEMs who are perceived to be actively trying to eliminate the secondary market for their products. Others have policies that enhance their secondary markets. The goal of this paper is to understand how an OEM's incentives and optimal strategies vis-a-vis the secondary market are shaped contingent on her relative competitive advantage, product characteristics and consumer preferences. The critical tradeoff that we examine is whether the indirect benefit from maintaining an active secondary market (the resale value effect) can outweigh the potentially negative e®ect of the sales of used products at the expense of new product sales (the cannibalization effect). To that end, we develop a model where the OEM can directly a®ect the resale value of her product through a relicensing fee charged to the buyer of the refurbished equipment. Moreover, we introduce a measure of the consumers' willingness to return their used products to account for the fact that the higher the price offered by a third-party entrant, the higher the ratio of returned products at their end-of-use. We analyze the OEM's decision in both the monopoly and the duopoly cases, characterize the optimal relicensing fee set by the OEM, and draw conclusions on the conditions that favor stimulating or deterring the secondary market.