Department of Systems Engineering and Engineering Management,

                    The Chinese University of Hong Kong


How Much Demand Should Be Fulfilled?

Professor Rachel Zhang
Industrial Engineering and Logistics Management Department
Hong Kong University of Science and Technology

Date : January 13, 2006 (Friday)

Time : 4:30 p.m. - 5:30 p.m.

Venue : Room 513, William M.W. Mong Engineering Building

(Engineering Building Complex Phase 2), CUHK

We study the inventory replenishment of a product whose demand can be
manipulated by restricting the supply. This research is motivated by the
tactic employed by manufacturers of fashion and luxury items that combines
intensive marketing with deliberate under-stocking in an attempt to create
shortages that add to the allure and sense of exclusivity of a product and
stimulate its demand. We use a finite horizon, periodic review model, where
the demand in every period is a decreasing function of the net ending
inventory in the previous period. Thus, the policy we derive incorporates the
effect of the marketing strategy on operational decisions. Using dynamic
programming, we characterize the optimal policy as a state-dependent,
monotone, base-stock policy and show that under-stocking is beneficial in
various scenarios. We also compare the optimal policy to the traditional
scenario in which demand is independent of inventory. Given that backorders
may stimulate demand, we propose and analyze a novel strategy, called the
inventory withholding strategy, which involves the management of both
inventory and backorders. In this strategy, backorders may be maintained even
when there is sufficient inventory to satisfy them. Our numerical experiments
study the impact of various model parameters in combination with the demand-
enhancing effect of backorders, called the wait-list effect, on the optimal
policy and its outcome.

This is a joint work with Amar Sapra and Von Anh Truong.

Rachel Q. Zhang joined HKUST as associate professor of IELM in 2004. She
received her Ph.D. in Industrial Engineering and Management Sciences in 1994
from Northwestern University and was previously a faculty member in the
Department of Industrial and Operations Engineering at University of Michigan,
and the Johnson Graduate School of Management at Cornell University. Her
research interests lie in production and inventory control, joint production
and financial decisions, and auction design in supply chains and deregulated
power exchange market. Her research has appeared in such journals as
Operations Research, Management Science, Interfaces, IIE Transactions, Naval
Research Logistics, and Advances in Applied Probability. She received an
honorable mention in the INFORMS Nicholson Paper Competition in 1994 and an
early-career award (CAREER) from the US National Science Foundation in 1995.

She is an active member of INFORMS and MSOM. She co-chaired the MSOM
Conference in Ann Arbor, Michigan in June 2000, served as an MSOM cluster co-
chair for the INFORMS National Meeting in Seattle, Fall 1998, is currently the
program chair for the 2006 IFORS conference. She also served as a member of
the INFORMS Nicholson Competition Award Committee in 1999 and 2000, the MSOM
Student Paper Competition Committee in 2000, and a panelist for the National
Science Foundation in 2000. She was the secretary of INFORMS Women in OR/MS
during 1999-2000.


Note : Cookies and drinks will be available at 4:15 pm.



                       ***** ALL ARE WELCOME *****

Host : Prof. Janny Leung
Tel : 26098238
Email : janny@se.cuhk.edu.hk

For more information please

refer to http://www.se.cuhk.edu.hk/~seg5810/