IEOR Seminar Series: Stefanus Jasin, University of Michigan
Title: Joint Inventory and Pricing for a One-Warehouse Multi-Store Problem: Spiraling Phenomena, Near Optimal Policies, and the Value of Dynamic Pricing.
Abstract: We consider a joint inventory and pricing problem with one warehouse and multiple stores, in which the retailer needs to make a one-time decision on the amount of inventory to be placed at the warehouse at the beginning of the selling season, followed by periodic joint replenishment and pricing decisions for each store throughout the season. This is a practically relevant and yet technically challenging problem. Motivated by much recent works in the Revenue Management literature, we study the performance of heuristic policies based on a deterministic/fluid relaxation of the original stochastic problem. To the best of our knowledge, this relaxation is also commonly used in industrial practice, especially for the purpose of making complex inventory allocation decisions. Our contributions are three-fold. We first show that simple re-optimization of deterministic/fluid problems may yield a very poor performance by causing a "spiraling down" movement in price trajectory, which in turn yields a "spiraling up" movement in expected lost sales quantity (i.e., lost sales quantity keeps going up as we continue re-optimizing the model). This cautions against a naive use of simple re-optimizations in the joint inventory and pricing setting with lost sales. Second, we propose a better heuristic policy by combining four ideas: (1) order-up-to control, (2) linear rate adjustment, (3) replenishment batching, and (4) random errors averaging. We show for a particular choice of control parameters that the proposed heuristic policy performs close to optimal when demand is Poisson and the annual market size for each store is large. Third, we show that the benefit of dynamic pricing cannot be recovered by implementing a combination of fixed pricing policy with a smarter (more sophisticated) replenishment policy, which underscores the limit of pure replenishment policy, and underscores the importance of dynamic pricing.
Bio: Stefanus Jasin is an Associate Professor of Technology and Operations at Stephen M. Ross Business School, University of Michigan. His research focuses on developing tools/algorithms for predictive and prescriptive analytics, with recent applications in pricing and revenue management, assortment optimization, supply chain management, e-commerce/omni-channel logistics, and online learning. optimization. His works in collaboration with several students and co-authors have been acknowledged by several awards, including 2023 Finalist in POMS-HK Student Paper Competition, 2022 Winner of EURO Pricing and Revenue Management Student Award, 2022 Second Prize in POMS-HK Student Paper Competition, 2019 Finalist in POMS-JD.com Best Paper Competition, 2018 Finalist in MSOM Student Paper Competition, 2018 Finalist in IBM Best Student Award Competition, 2018 Winner of INFORMS Revenue Management and Pricing Section Prize Award, 2017 Winner of INFORMS eBusiness Best Paper Award, and 2017 Second Prize in POMS-HK Student Paper Competition. He is currently serving as the Department Editor for Revenue Management and Market Analytics department at POMS. He is also an Associate Editor at Management Science, Operations Research, Manufacturing and Service Operations Management, and Naval Research Logistics.
Location: 3108 of Etcheverry Hall
December 4 @ 3:30 pm – 4:45 pm