Prof. Shaohui Zheng
Hong Kong University of Science and Technology
Talk:
Managing Inventory Replenishment and Product Substitution for Systems under a Flexible Substitution Scheme
Abstract:
We study a multi-product inventory system that allows substitution. Products can be used to supply demand over a selling season of N periods, with a one-time replenishment opportunity at the beginning of the season. The substitution rule is flexible in the sense that the supplier can choose whether or not to offer substitution with products in stock and at what price or discount level, whereas the customer may or may not accept the offer, with the acceptance probability depending on the customer’s preference and the substitution price. The decisions are the replenishment quantities at the beginning of the season, and the dynamic substitution-pricing policy in each period of the season. Using a stochastic dynamic programming approach, we present a complete solution to the two-product problem. Furthermore, we show the value function satisfies certain important structural properties (including concavity and submodularity), which facilitate the solution procedure and help identify threshold policies for the optimal substitution-pricing decisions. These also provide guidance for us to propose a heuristic policy for the multi-product problem. We demonstrate that the flexible substitution model not only unifies and extends the traditional supplier-driven and customer-driven substitutions, it outperforms significantly both schemes.
Biography:
Shaohui ZHENG is a professor in the School of Business and Management, and the director of the Center for Marketing and Supply Chain Management, Hong Kong University of Science and Technology. He received his Ph.D. degree from Columbia University, and M.S. degree from the Academy of Sciences of China. Professor Zheng’s current research interests include supply chain management, operations of manufacturing and service systems, and the interface of operations and marketing. His research work appears in Operations Research, Management Science, IIE Transactions, Journal of Applied Probability, IEEE Transactions on Automatic Control, and Queueing Systems etc. Professor Zheng has served as Associate Editor for Operations Research, and Asia-Pacific Journal of Operational Research, and served as a Guest Editor for Annals of Operations Research.
