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The Bayesian Newsvendors in Supply Chains with Unobserved Lost Sales

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  • Glenn, David

    (U of Illinois at Urbana-Champaign)

  • Bisi, Arnab

    (U of British Columbia)

  • Puterman, Martin L.

    (U of British Columbia)

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    Abstract

    We consider two-echelon supply chains with one supplier and two retailers. Retailers are censored newsvendors facing general parametric demand distributions involving unknown parameters. Using a Bayesian MDP formulation, we investigate how the supplier can make use of the combined information gathered from the retailers' sales data to increase channel profits. We compare among the following three scenarios: (i) supplier shares her (pooled) demand distribution updates with the retailers, (ii) supplier does not use pooled updates, and (iii) integrated firm. We show that buy-back contracts achieve channel coordination in the above system.

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    File URL: http://www.business.illinois.edu/Working_Papers/papers/04-0110.pdf
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    Bibliographic Info

    Paper provided by University of Illinois at Urbana-Champaign, College of Business in its series Working Papers with number 04-0110.

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    Date of creation: Aug 2004
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    Handle: RePEc:ecl:illbus:04-0110

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    Web page: http://www.business.uiuc.edu/Working_Papers/Main.asp
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    1. Martin A. Lariviere & Evan L. Porteus, 1999. "Stalking Information: Bayesian Inventory Management with Unobserved Lost Sales," Management Science, INFORMS, INFORMS, vol. 45(3), pages 346-363, March.
    2. Barry Alan Pasternack, 1985. "Optimal Pricing and Return Policies for Perishable Commodities," Marketing Science, INFORMS, INFORMS, vol. 4(2), pages 166-176.
    3. Donald L. Iglehart, 1964. "The Dynamic Inventory Problem with Unknown Demand Distribution," Management Science, INFORMS, INFORMS, vol. 10(3), pages 429-440, April.
    4. Samuel Karlin, 1960. "Dynamic Inventory Policy with Varying Stochastic Demands," Management Science, INFORMS, INFORMS, vol. 6(3), pages 231-258, April.
    5. Stephen C. Graves, 1999. "A Single-Item Inventory Model for a Nonstationary Demand Process," Manufacturing & Service Operations Management, INFORMS, INFORMS, vol. 1(1), pages 50-61.
    6. Gérard P. Cachon & Marshall Fisher, 2000. "Supply Chain Inventory Management and the Value of Shared Information," Management Science, INFORMS, INFORMS, vol. 46(8), pages 1032-1048, August.
    7. Fangruo Chen, 1998. "Echelon Reorder Points, Installation Reorder Points, and the Value of Centralized Demand Information," Management Science, INFORMS, INFORMS, vol. 44(12-Part-2), pages S221-S234, December.
    8. Srinivasan Raghunathan, 2001. "Information Sharing in a Supply Chain: A Note on its Value when Demand Is Nonstationary," Management Science, INFORMS, INFORMS, vol. 47(4), pages 605-610, April.
    9. Katy S. Azoury, 1985. "Bayes Solution to Dynamic Inventory Models Under Unknown Demand Distribution," Management Science, INFORMS, INFORMS, vol. 31(9), pages 1150-1160, September.
    10. Yossi Aviv, 2001. "The Effect of Collaborative Forecasting on Supply Chain Performance," Management Science, INFORMS, INFORMS, vol. 47(10), pages 1326-1343, October.
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