Tuesday, December 3, 2013

Amazon's delivery drones: Future of deliveries?

File:Carl Spitzweg 029.jpg
Women awaiting delivery of children by storks [painting by Carl Spitzweg]


Some of us still fancy children being delivered to the parents by storks [popularized by Looney Tunes], and wanting mothers would leave sweets by the windows as a message (or an order) for storks to deliver a child. Wait a minute! How does this relate to Amazon? The answer lies in the new R&D initiative of Amazon that will employ drones to deliver packages (upto 5 lbs.) to customers living within a certain proximity to their warehouse. [link to wall street article]






Even though the Amazon drones project is still in R&D stage, and it might be too early to even speculate about the future of deliveries and its impact on big-time logistics players such as UPS, USPS, and Fedex, it is safe to say that reducing the lead time to customers is certainly on the minds of e-retailers. Conventional transportation by road and by air mail has been improved over the years but a paradigm shift still awaits the industry where overnight shipping can be changed to next 30 minutes of ordering.

Questions facing drones as future leaders of deliveries are:
  • Working cost of using a drone compared to using a delivery man?
    • If the cost of keeping a drone is relatively high compared to keeping a delivery man who can drive to nearby customers from warehouse on demand maintaining the shipping time of 30 minutes. What will be the benefit of using a drone?
  • Approval from federal aviation authority?
    • The drones shown so far are noisy, fly at certain elevations and will definitely need an approval from FAA for safety and security.
  • Staffing of drones at a warehouse?
    •  Sporadic delivery schedules coupled with a short lead time will make the scheduling and recruitment of drones difficult specially for Amazon who has a very high service level for deliveries
  • Delivery confirmation, package safety and theft?
    • With human interaction package confirmation, safety and theft and easier to track. What will be the new technologies that will replace the existing ones?
I will wait for answers to these questions as well as my first delivery by drones in the coming future!

Update: UPS is also speculated to be researching on its own delivery drones. [link]

Wednesday, November 13, 2013

Update on AA and US Airways merger: a curse for consumers?

This is a follow up on my previous post

AA and US Airways merger: a curse for consumers?


With the clearance of merger after reaching an antitrust settlement the merger is worth $17 billion! [article here]

To space out concerns over consumer protection, the airlines have agreed to give up space at few major airports to low-cost airlines such as Southwest, JetBlue etc. This will effectively reduce their combined  capacity. The settlement affects about a little over 100 flights out of more than 6500 flights which is just a small fraction of their business. 

AA and US Airways merger: a curse for consumers?

What makes the settlement interesting from a supply chain and revenue management are these questions.

  1. With more capacity and opportunities for low-cost carriers such as Southwest, the hope is to maintain competition among airlines which is to protect consumers, however the challenges are:
    • Keeping the prices low in remaining sectors which do not see increase in capacity for low cost carriers.
    • Are the low-cost airlines prepare to milk this new space? Does this mean a consolidation of low-cost airlines to compete with the big fish, i.e., 'AA and US'? In case of such a consolidation consumers will suffer the most...
  2. With the antitrust settlement reached, the consumers are now in open and can only wait and hope for the prices to remain low. On the bright side we have AMR filed for bankruptcy that can recover, US Airways that can benefit from synergies of the merger. The challenge here is however for current consumers:
    • AA is part of OneWorld Alliance and US Airways is part of the Star Alliance currently. For customers who are loyal to a particular alliance and have accumulated huge points on either of these network of alliances may face the brunt. As they have to switch to either of these alliances in future. For some customers it will be a Christmas present and for some a Halloween trick! It will be interesting how will the merger accommodate both these customers, keeping everyone happy is difficult anyways !
  3. Will other airlines follow suit? Will we see further government intervention or laws passed by congress to restrict other airlines from merging?
I feel there is a lot of uncertainty because of this merger, and we all have to hold on to our seat-belts and see where and when the flight takes off... 

What will be the future? and more importantly what should be the future of airline industry?


Monday, October 14, 2013

Vendor Flex - Amazon's Innovative Logistics Strategy

Internet retail (e-commerce) boomed in the 90's and businesses have transitioned from brick and mortar stores to online sales channel. Businesses such as eBay and Amazon have taken this e-commerce to the next level by providing a marketplace in itself for a variety of products including groceries, textbooks, peripherals, home and gardening and even kitchen items, which were hard to imagine having been sold outside a traditional store. Amazon is trying to increase its share of retail products such as soaps, groceries, food products, cosmetics online and in such a move it is experimenting with a logistics system - 'Vendor Flex'. [Article is here].


The Vendor Flex system is characterized by:
  • Amazon has some workforce at P&G warehouses.
  • This workforce manages orders for P&G products at that warehouses which includes:
    • maintaining inventory (replenishment and count),
    • packing and shipping out.
Vendor Flex helps Amazon by
    1. reducing cost,
    2. reducing shipping lead-times to customers,
    3. increasing average number of orders per day.
Vendor Flex helps P&G by
    1. reducing cost to manage inventory,
    2. reducing cost to ship to Amazon,
    3. information sharing by Amazon about demand (mitigates the bullwhip effect, Lee, Padmanabhan and Wang 1997)
    4. increase in sales.
Walmart employs a similar system however it does the opposite, it has a Vendor Managed Inventory System where vendors such as Coca-cola manage their product's inventory at Walmart. Amazon has moved up the supply chain by managing inventory at its supplier P&G. At the core of any GOOD inventory management system is an ERP system that is able to record and transmit information about orders (sales) and inventory. The strategies of Walmart and Amazon should be highly different from a supply chain perspective since Amazon is a pull system for consumer demand (it gets demand and then it ships to customers like Dell) and on the other hand Walmart has a push system for consumer demand where consumers typically visit the store and make purchase decisions and Walmart procures products before this.

Amazon is already inside or in talks to enter the warehouses of companies including Seventh Generation Inc., Kimberly Clark Corp.  and Georgia Pacific Corp.. [Article is here] It will be interesting to see if other online retail firms adopt Vendor Flex and will it be a success for Amazon? Vendor Flex looks promising but will it stand the trust of time and ever evolving consumer needs?

Thursday, September 26, 2013

Resources for Scientific Writing: LATEX

The writing tools I use for white papers, cases, and class reports are:
  • Microsoft Word
  • OpenOffice
  • Google Docs - to share with friends (most informal due to lack of templates and not friendly in terms of formatting and shortcuts)
  1. Figures/Tables/Equations: very easy to write and automatic number of equations etc.
  2. Higher control on formatting and fonts unlike MS word.

What I use for scientific writing: LATEX

LATEX is a typesetting program that is based on document markup language very similar to html (hypertext markup language). Key benefits of LATEX are:
Download LATEX here:

LATEX plugin for powerpoint slides: IguanaTex, Texpoint (paid) or beamer.

LATEX plugin for excel to convert excel tables to LATEX format. excel2latex

LATEX forums: 
http://tex.stackexchange.com/ : Stackexchange for TeX

http://en.wikibooks.org/wiki/LaTeX : Wiki for LATEX

I have seen a few online (cloud based) websites forLATEX, that might be the future of scientific writing, where authors can collaborate online to write articles, and possibly integrate with Journals/ Publishers.

https://www.sharelatex.com/http://www.scribtex.com/

Then for this blog I use http://www.texify.com/ or http://www.codecogs.com/latex/eqneditor.php to write latex based equations as rendered images into html code.

People are usually scared to start with LATEX as it is typically not WYSIWYM /ˈwɪziwɪm/ (an acronym for "what you see is what you mean") . Lyx is a downloadable software for Windows/Mac that is based on TEX and is WYSIWYM. ( http://www.lyx.org/)

Sunday, September 15, 2013

MOOCs vs. 'Brick and Mortar' Classroom Education

MOOCs (Massive Open Online Courses) are the next big thing that is happening or will happen to the way education is practiced today. It has its own pros and cons, and people who love it and people who don't like it. What excited me about this was the news on Friday the 13th, September (a day widely known for bad omen), where Wharton (leading business school in the world) is offering its 1st year online courses on coursera.org. People have already started speculating about this move of Wharton. First some facts [source: Bloomberg]:



    Wharton Offers Free Online Courses Copying First-Year MBA Study

    Source: Bloomberg

    coursera: A hub of MOOCs


  1. "For a $49 fee, students can get a verified electronic certificate showing they’ve completed course requirements."
  2. "Some Wharton professors are using the MOOC content in their own classes, asking students to watch the lessons beforehand so that class time can be used for discussion -- a practice known as “flipping” a class."
  3. "About 700,000 students in 173 countries have enrolled in Wharton MOOCs, more than the combined enrollment in the school’s traditional MBA and undergraduate programs since its founding in 1881."
  4. "Wharton has no skeleton to accept a certificates for course credit should students subsequently enroll."

Once we get a grasp of the above facts, we are in a better position to understand the role of such MOOCs in present as well as in future. 

What is in it for Wharton/MBA programs?

  • Let us say about 1% of registered students apply for electronic certification, this gives about $343,000 revenue to Wharton/coursera which is not bad.
  • Philanthropy.
  • Advertising/knowledge about their MBA program world-wide.
  • A typical MBA program is  beyond just book-based knowledge, and when students can learn the book based stuff online, classroom teaching is even more effective - "flipping a class" concept.
  • Creating a standardized course/syllabus that is known worldwide.

What is in it for coursera programs?

  • Possible revenue sharing for certification.
  • More recognition with top rated programs and schools offering classes.
  • Overall increase in number of students.

What is in it for students?

  • Extremely cheap way of acquiring 'reliable' knowledge.
  • Certifications.
  • Additional knowledge outside classroom for students who are already attending college.
  • Students in developing or under-developed countries have access to open knowledge sources, and with this there will be an increasing pressure on academicians in the world to match up to that standard.

My Take:

  • This is an exciting area for any university to launch into, it legitimizes their philanthropy, certification, course syllabus.
  • It is a win-win for MOOC hubs such as coursera, which can make money as well as attract students with legit courses.
  • It is also a good source for students to learn what is current, and what is standard to learn.

Vision:

  • With so many universities that will spring into the MOOC market, there is a need for further standardization and coordination so that we can ensure uniform learning across platforms and countries.
  • Offering courses in multiple languages to improve out-reach.
  • Students should not confuse this with the classroom experience, where there is a more intimate connect with a teacher, and fellow students. This is the key issue which will govern the future of MOOCs, as well as traditional classroom. Narrowing the gap could be detrimental for at least one mode of education that will replace.

Wednesday, September 11, 2013

Collusion in a 'fair market': A case for Apple

This story is in reference to latest news on Apple's e-book business, whereby Reuters report - "U.S. District Judge Denise Cote in Manhattan found 'compelling evidence' that Apple violated federal antitrust law by playing a 'central role' in a conspiracy with the publishers to eliminate retail price competition and raise e-book prices." [story here]

Amazon is the leading player in e-books market, and maintains about 65% market share right now, and had 90% market share once. The cause for this downfall is claimed to be a collusion between Apple and top 5 leading publishers which led to an increase in the prices of e-books. The basis for an anti-trust lawsuit is typically high prices which leads to loss of consumer surplus, its best practice is to have a healthy competition in the market which protects consumer rights [refer to US-Airways and AA merger lawsuit story, at CNN].

Amazon Kindle vs Apple iPad (ebook wars) source: Guardian
The question now is, in such dynamic and developing technology oriented markets with evolving business models, where Amazon had an almost monopolistic role, entry barrier can be very high. In defense of Apple, this price variation due to favorable contracts with publishers, secured its entry into the market in short term. However, long-term evolution can be totally different, and should lead to lower prices to direct competition between Amazon and Apple.

There are several questions of interest:

  1. How upstream contracts affect downstream pricing in a competition?
  2. Given an incumbent and an entrant, what should be the strategy (pricing, contractual) of entrant to be successful in - (a) short run (b) long run?
  3. How can 1 and 2, be implemented without conflicting with RPA (robinson-patman act) ?
  4. What should be the amount of Govt. intervention in technologically evolving markets?
People are already taking a case for Apple such as this article in Forbes, which defends Apple's position as an entrant in the e-book market. 

Tuesday, September 3, 2013

Microsoft's Acquisition of Nokia: A Supply Chain Perspective

Elop and BallmerMicrosoft (MS) is acquiring Nokia and the deal is struck at a staggering $7.2 billion! The acquisition is also of top executives and 32,000 work force of Nokia, with MS entering hardware mobile market by 2014. With such a huge barrier to entry in mobile hardware market, with Microsoft's strong patent and software base what is going to be the future of mobile business is already under plenty of speculation. For me this is rather interesting as this is seems to be a strategic supply chain (SC) move where MS now fully controls the operations of its licensee for patents and software. Google is already geared up with Android based Google Nexus starting to increase its market share by being a very low cost smartphone in a smartphone market where customers have plenty of options and complicated decisions to make and keep up with loyalties.

Apple, Google and MS will soon have their own OS, own hardware and  own set of loyal customers and bargain hunters. The market is becoming increasingly complex and Google already is also trying to take some leap ahead by trying to purchase spectrum [story here at CNET].

As an SC enthusiast the smartphone is moving towards a vertical integration system, it is now interesting to see is this vertical integration beneficial for the industry as a whole? For consumers and industry this will be boon as this reduces the double marginalization effect and now all the players will be able to get more money for each penny. However, in a fierce competition with continuously decreasing smartphone production costs, will it lead to price wars? A simple way to avoid price wars is to invest in future technology that will differentiate the company from its competitor over long run and keep the market stable.

We will see how the market turns out to be, but people have already start posing questions, for example this post on TIME [here].

Saturday, August 24, 2013

Pricing Strategies: A Quick Tutorial



Is the price right?
 [source: AmazonGenius]

Pricing is the moment of truth for any business. Demand for a product is eventually a result of the price being charged for a product, so setting the "right" price is as important as choosing the "right" product to sell that can create a successful business. Pricing is studied more in the field of marketing where pricing is one of the 4 Ps of marketing (others are product, place and promotion).

The focal point of my research so far has been the study of pricing in supply chain contexts such as stockouts, different type of upstream contracts or sourcing, and competition. The more pressing and fundamental issue at the core of pricing is how consumers react to different pricing strategies and what are these?

In order to learn more about pricing strategies, I came across this online tutorial by Houston Chronicle (which is not a place that comes to my mind when I am thinking about literature on pricing). 

The link is : Houston Chronicle
Chron
Houston Chronicle

I liked the examples, and compartmentalization of topics at this source. I would more likely to call this a wiki on pricing strategies.

With growing technology and big-data pricing is even more challenging and there is more scope for  innovative pricing strategies.

Wednesday, August 21, 2013

Best 10 Milestone Papers in 10 years of Revenue Management

This was shared on MSOM Informs on Linkedin. I liked the idea of selecting the top 10 papers in last years of revenue management. This not only acknowledges the work of leading researchers but also gives the community a big picture where the field is heading.

All papers are available FREE.

http://www.palgrave-journals.com/rpm/collections/milestones_collection.html

Saturday, August 17, 2013

AA and US Airways merger: a curse for consumers?

Last week the department of justice (DOJ) thwarted the merger between AA and US airways that would have made the world's biggest airline company. The move was based on the premise that this will lead to an increase in airfares and consumers will end up paying more. This is because there will be less competition in the airlines sector, and airlines will have a lesser incentive to reduce fares to attract the customers. A simple example is comparison of consumer surpluses in a monopoly with a single durable good compared to a symmetric Cournot duopoly with durable goods, where in a monopoly prices are higher, consumer surplus is lower compared to the duopoly.

Interesting things to observe about the airline industry are:
  1. High entry barrier, it takes a lot of capital to setup an airline business.
  2. Firms are identical in terms of product, most airlines operate from same terminals and similar airplanes with similar flight times.
  3. Price discrimination is usually achieved through segmenting customers based on time of purchase of tickets, type of ticket (refundable, non-refundable, economy, business) etc. 
  4. Operating costs such as airline ticket counters, airline staff (pilots, attendants, scheduling and operations) is highly symmetric across airlines and there is a good chance these costs will push down when companies merge. The existence of airline partnerships across the globe is one such measure to reduce these operating costs.
  5. Owing to long gestation periods and break-even point, companies try to secure profits by mergers and alliances to avoid bankruptcy and secure cash-flow for operations. In this case both AA and US airways argument was that this merger is beneficial to secure their failing future.
Solution: My view on this is that airlines should be given an opportunity to merge if they are ready to pass on the benefits operational synergies achieved through the merger to consumers. If department of justice can help secure this, then it could be a big win for the sector as well as consumers.

Several articles discusses this issue and its impact on different parties including:

WSJ
Reuters

Sunday, August 11, 2013

Importance of Middlemen in Global Sourcing

Supply chains are getting further complicated as the economies are globalizing at levels not seen before. The role of middlemen (or sourcers) has changed from producers who used to supply directly to suppliers to malls or end retailers who specialize in finding 'cheap' production based product 'reliable' supply. A recent article in New York Times on "Linking Factories to the Malls, Middleman Pushes Low Costs" talks about Li & Fung, a hongkong based company who marvels at finding cheap labor and supply across Asia and glove to feed the malls. It owns no clothing factories, sewing machines or fabric mills, with 15,000 suppliers in over 60 countries. 

There are several questions of interest here: 
  1. How important are these companies for the benefit of supply chain ? Do they help to improve profits of manufacturers who would otherwise not sell to developed markets?
  2. How does costs, reliability, lead times affect the purchasing decisions, prices, and profits in such a complex global supply chain system?
  3. What kind of contracts can achieve operational efficiency in the supply chain?
  4. With an increasing emphasis on fair-trade and local sourcing, what is the future of such middlemen?

Wednesday, August 7, 2013

Quote of the day - Multiple Decision Makers

“From the time of Adam Smith’s Wealth of Nations in 1776, one recurrent theme of economic analysis has been the remarkable degree of coherence among the vast numbers of individual and seemingly separate decisions about the buying and selling of commodities. In everyday, normal experience, there is something of a balance between the amounts of goods and services that some individuals want to supply and the amounts that other, different individuals want to sell [sic]. Would-be buyers ordinarily count correctly on being able to carry out their intentions, and would-be sellers do not ordinarily find themselves producing great amounts of goods that they cannot sell. This experience of balance is indeed so widespread that it raises no intellectual disquiet among laymen; they take it so much for granted that they are not disposed to understand the mechanism by which it occurs.” Kenneth Arrow (1973)

I stumbled upon this quote here, while reading for ways to establish uniqueness of an equilibrium.

Tuesday, August 6, 2013

Optimizing the Learning Curve: Tao Li

Prof. Tao Li at Leavey Business School, SCU [PhD OM, UTD] is working on relationship between pricing and efficiency gains. Pricing is the moment of truth for a firm (Corey, 1991) and when firms improve their processes after some experience, this should translate into prices they offer. This effect on price is further amplified when firms sell products through retailers and not directly due to the double marginalization effect.

Ultimately the question is how can this effect be mitigated, and available tools to coordinate supply chain are contracts, information sharing, and transfer of ownership etc. Prof. Li et al. studied this coordination game in light of contracts that will help company leverage the efficiency gains and improve their profits. 

This is a very interesting and fundamental topic that concerns supply chains. More details are in the paper which I leave for readers to explore. 

This research also made it to highlights at Leavey and the article is below.

How Pricing Can Be Connected to Efficiency Gains

When a company launches a new product, there is nearly always some inefficiency in the manufacturing process at first. And, typically, with the passage of time, there is a learning curve in which the firm figures out how to manufacture the product more efficiently.
The normal pricing inefficiency that exists in any relationship between manufacturer and retailer, known as “double marginalization” because both parties are affected, becomes more severe as the learning curve makes manufacturing more efficient.
Tao Li, a new assistant professor of operations management and information systems, has been looking into how revenue-sharing agreements between manufacturers and retailers can make the supply chain more efficient and boost profits.
“Other approaches to supply-chain efficiency, such as quantity discounts, two-part tariffs and buy-back programs don’t really coordinate the chaos,” Li says. “But we found that by using a revenue-sharing contract, it’s possible to control the supply-chain chaos so that both the manufacturer and retailer are better off.”

“It is a game played by both the manufacturer and the retailer.”


The findings are reported in a working paper titled “Dynamic Pricing, Procurement, and Channel Coordination with Stochastic Learning,” which Li co-authored with Xiuli He of the University of North Carolina at Charlotte, and Suresh P. Sethi, at the University of Texas at Dallas.
In this sort of supply chain situation, the key issue is double marginalization, which refers to the pricing inefficiency that occurs when the manufacturer sets a wholesale price based on anticipated manufacturing costs and the retailer sets a retail price based on anticipated demand.
Tao Li Associate Professor or OMIS
That disparity can become worse as the learning curve makes the manufacturing process more efficient and less costly at the same time demand for the product is easing after the typical flurry of sales when the product was first introduced.
Li says that academic studies to this point have focused on the learning curve issue from the manufacturer’s perspective. In the paper he and his colleagues wrote, he says, “we look at it as a game played by both the manufacturer and retailer.”
Additionally, they look at it over two different periods: when the product first comes out, and later, when manufacturing efficiency has peaked but demand is falling off.
(Yet another consideration, originally taken up in this paper but subsequently broken out into a second one, is how to factor in the question of whether the retailer has the ability to carry over inventory from the first period to the second, which could add another distortion to the supply-chain efficiency.)
What Li and his colleagues found was that a well-constructed revenue-sharing agreement between the manufacturer and retailer can smooth out the disparities in the process.
As an example of how that might work, Li outlined a contract arrangement in which the retailer and manufacturer split sales revenues 50-50 in the first period of a contract, then the retailer takes a 60 percent share in the second period.
(He notes that negotiated rates aren’t always optional because large retailers, such as Target and WalMart have the clout to get themselves a larger share, which creates another form of distortion.) Li also said that the retailer may not necessarily be better off by getting a larger share of the revenue in the second period.
When the arrangements are optimal, the result is likely to be that the manufacturer’s share of the retailer’s revenue allows it to charge a lower wholesale price at the outset, which means the retailer can charge a lower sales price, perhaps stimulating additional consumer demand.
In the second period, when sales drop, the retailer gets a bigger cut, while the manufacturer’s margin is improved by greater production efficiency. Lower wholesale and retail prices then create a better chance of growing total sales.
“Reducing wholesale prices improves the efficiency of the supply chain,” Li says, “and that grows the pie of total sales. Once the pie becomes larger, both the manufacturer and retailer are better off.”

Friday, August 2, 2013

Climate Change and Conflicts: A Statistical Study

I came across an article on BBC [Rise in violence 'linked to climate change'] which talks about research by a team of US scientists who establish the relation between climate change and conflicts. After this, I looked for this publication to see which statistical tools they were using to establish causality. The article is published in science magazine [link]. The model they use is a time-series model given by

conflict_variableit = β × climate_variableit + μi + θt + ϵit

, where locations are indexed by i, observational periods are indexed by t, β is the parameter of interest and ϵ is the error. If different locations in a sample exhibit different average levels of conflict - perhaps because of  cultural, historical, political, economic, geographic or institutional differences between the locations - this will be accounted for by the location-specific constants μ (“fixed effects”). Time specific constants θ (a dummy for each time period) flexibly account for other time-trending variables such as economic growth or gradual demographic changes that could be correlated with both climate and conflict. 

This is a very simple model, still very powerful in determining correlation between conflict and climate change. What needs to be done is collect data (most difficult part) and then a regression to check if 'β', μi and θt are significant, and the researchers successfully prove that. However, the paper ends with the important part of 'causation', where the field is still in infancy to establish a clear cause which relates climate change and conflicts. There are many competing plausible theories, and there is still a lot of scope and research left to unravel that mystery. Why I find this interesting is because correlation and causation are confused very easily, and this study is an example where the way BBC reports the findings is very different from the way authors report in publication. Authors (Hsiang et al.) are reporting the quantitative influence of climate change on conflicts, not a causal link between the two variables, whereas BBC reports it as a causal link with rise in violence linked to climate change. One can watch this video to see what it means to differ between correlation and causation.


Thursday, August 1, 2013

Professor of Marketing Makes Sense of Consumer Behaviors [UTDallas News]


Professor of Marketing Makes Sense of Consumer Behaviors

Aug. 1, 2013
Dr. Dmitri Kuksov
Dr. Dmitri Kuksov
Which designer purse will become the next “it” bag?
Many have concluded that fashion hits such as Hermes’ famous Birkin bag are random and impossible to predict.
New research by Dr. Dmitri Kuksov, professor of marketing in the Naveen Jindal School of Management, concludes that the randomness is no accident.   
Dmitri Kuksov and his co-author Kangkang Wang, who is currently a professor at the University of Alberta, challenge prevailing notions about how products rise to must-have status in their article, “A Model of the 'It' Products in Fashion.” The article appeared in the journal MarketingScience earlier this year.
The article explores the “it” bag phenomenon, in which purses by Fendi, Prada, Dior and other designers have become the must-have bags in various years. The authors quote observations that fashion hits are the results of “dumb luck.”
Kuksov, who joined the UT Dallas faculty last year, said the standard explanation is often that success is random because nobody can predict which manufacturer will create the best product.
His research agrees that the selection of a fashion hit is random. But, he said the unpredictability comes by design.

Dr. Dmitri Kuksov

TITLE: Marketing professor
RESEARCH INTERESTS: Pricing strategies, branding, customer satisfaction
PREVIOUSLY: Associate professor of marketing, Olin School of Business, Washington University in St. Louis
Fashion editors, bloggers and celebrities play a role in determining fashion’s must-have products, the study found. These influential “consumer coordinators,” as the study calls them, make the process unpredictable.
“What we say in contrast is that randomness is due to the explicit strategy by the editors and other consumer coordinators,” Kuksov said. To illustrate his point, his article begins with a quote from William Shakespeare’s Hamlet:“Though this be madness, yet there is method in’t.”
To maximize the probability that a product becomes a fashion hit, the price must be right. Kuksov said high-end consumers prefer prices to be out of reach to lower-end consumers. But he said his research made a surprising finding that pricing lower-end customers out of the market is not optimal for generating maximum profits in a competitive market. Kuksov’s study found that the best price is one that also generates sales among the lower-end consumers.
Dr. Hasan Pirkul, Jindal School dean and Caruth Chair of Management, said that Kuksov brings a strong quantitative marketing research background to UT Dallas.
“Dr. Kuksov brings a unique perspective to his research with his expertise in both marketing and mathematics,” Pirkul said. “His research on fashion’s “it” products is an example of his important contributions to our understanding of the status goods market.”
Kuksov joined UT Dallas after teaching at Washington University in St. Louis. He earned a PhD in marketing from The University of California, Berkeley and a PhD in mathematics from Brigham Young University. Kuksov, who enjoys science fiction and movies, earned his bachelor’s degree in math from Moscow State University.
He said one of the reasons he was drawn to UT Dallas was because of its focus on quantitative research and engineering and its quest to become a Tier One university.
“UT Dallas is fast-growing and improving in all dimensions,” he said.

[Reposted article from utdallas.edu site [here]]

Monday, July 29, 2013

Comet Cupboard (Case for Inventory Management for Non-Profits)

Comet Cupboard

The Comet Cupboard is a free to use UT Dallas food pantry initiative dedicated to helping students in need. Its primary mission is to provide necessary food and personal care items to members of the school community. 

Since the facility is located  [locationnext door to my office in library, I always wondered how they managed their inventory being a not profit organization, and run by undergraduate students. Classical inventory management assumes cost minimizing or profit maximizing participants and very less research has been dedicated to not for profit management. 

Key Features:

  1. Not for profit - objective is to maximize social surplus,
  2. Accepts donations of non-perishable, unexpired food items only (durable goods) such as canned soups, ramen, dried fruits etc. - unused inventory is carried over,
  3. Accepts monetary donations, therefore has a budget to buy items not received via donations,
  4. Maintains a list of "high demand" items [click here].

A Naïve Problem Formulation:


Problem Formulation
This is a very simple formulation, where we assume there are N items managed by comet cupboard, and demand for each items is known in advance given by di's. They know exact inventories at hand x0's , the money received B as donation, and the prices pi. With this the decision is to order i.e. xi's. 

The key is the objective function as this focuses on demand satisfying and procuring as much so that budget constraint is usually tight (assuming high levels of demand). In such a situation, demand forecasting is very crucial and they did a good job by identifying high demand items (they can do better though by high medium low demands). Moreover, because of large assortment size, the problem becomes more complicated.

Recommendations:

  1. Track inventories, to estimate demands,
  2. Surveys to see what students 'prefer' in terms of products,
  3. This model does not assume substitutability among products, a better model will include this and it is a good idea to save money by providing cheaper substitutes,
  4. We can make this model richer by adding constraint on individuals (which is right now implemented): each student is allowed to  take up to 4 items. 
Feel free to share comments and thoughts on this.