Impact of cost of substitution and joint replenishment on inventory decisions for joint substitutable and complementary items under asymmetrical substitution

[EN] In this paper, impact of cost of substitution and joint replenishment on inventory decisions for joint substitutable and complementary items under asymmetrical substitution has been studied. The phenomenon of substitution is considered in a stock-out situation and when items become out of stock due to demand then unfulfilled demand is asymmetrically substituted by another item. We formulate the inventory model mathematically and derived optimal ordering quantities, optimal total costs and extreme value of substitution rate for all possible cases. Moreover, pseudo-convexity of the total inventory cost function is obtained and the solution procedure is provided. Numerical example and sensitivity analysis have been presented to validate the effectiveness of the inventory model and substantial improvement in total optimal inventory cost with substitution with respect to optimal total inventory cost without substitution is seen.Mishra, RK.; Mishra, VK. (2020). Impact of cost of substitution and joint replenishment on inventory decisions for joint substitutable and complementary items under asymmetrical substitution. WPOM-Working Papers on Operations Management. 11(2):1-26. https://doi.org/10.4995/wpom.v11i2.13730OJS12611

Ambiguity aversion in buyer-seller relationships: A contingent-claims and social network explanation

Negotiations between buyers and sellers (or suppliers) of goods and services have become increasingly important due to the growing trend towards international purchasing, outsourcing and global supply networks together with the high uncertainty associated with them. This paper examines the effect of ambiguity aversion on price negotiations using multiple-priors-based real options with non-extreme outcomes. We study price negotiation between a buyer and seller in a dual contingent-claims setting (call option holding buyer vs. put option holding seller) to derive optimal agreement conditions under ambiguity with and without social network effects. We find that while higher ambiguity aversion raises the threshold for commitment for the seller, it has equivocal effects on the buyer's negotiation prospects in the absence of network control. Conversely when network position and relative bargaining power are accounted for, we find the buyer's implicit price (or negotiation threshold) decreases (or increases) unequivocally with increasing aversion to ambiguity. Extending extant real options research on price negotiation to the case of ambiguity, this set of results provides new insights into the role of ambiguity aversion and network structures in buyer-seller relationships, including how they influence the range of negotiation agreement between buyers and sellers. The results also help assist managers in formulating robust buying/selling strategies for bargaining under uncertainty. By knowing their network positions and gathering background information or inferring the other party's ambiguity tolerance beforehand, buyers and sellers can anticipate where the negotiation is heading in terms of price negotiation range and mutual agreement possibilities

Joint Selling of Complementary Components Under Brand and Retail Competition

Suppliers of complementary goods often package their items together when selling to downstream retailers. One motivation behind this behavior is to reduce double marginalization through coordinated pricing so that system efficiency is improved and individual members can also benefit. The objective of this paper is to understand how competition in supply chains would impact such joint selling partnerships among complementary suppliers. We first model competition at the supply level, which is generated from the existence of multiple partially substitutable brands (or suppliers) for a particular component. We then extend the analysis to a model that also involves retail competition caused by decentralization among retailers who assemble suppliers’ components into final products and sell to customers. The analysis of a model with two complementary components, one of which has multiple brands, indicates that the supply-level competition discourages joint selling of complementary goods. That is, when competing brands become more alike (or substitutable), complementary suppliers act more independently in pricing and selling their items. However, retail competition leads to an opposite effect: Competition among retailers would actually encourage complementary suppliers to package their goods together and act jointly

Joint selling of complementary components under brand and retail competition

Suppliers of complementary goods often package their items together when selling to downstream retailers. One motivation behind this behavior is to reduce double marginalization through coordinated pricing so that system efficiency is improved and individual members can also benefit. The objective of this paper is to understand how competition in supply chains would impact such joint selling partnerships among complementary suppliers. We first model competition at the supply level, which is generated from the existence of multiple partially substitutable brands (or suppliers) for a particular component. We then extend the analysis to a model that also involves retail competition caused by decentralization among retailers who assemble suppliers’ components into final products and sell to customers. The analysis of a model with two complementary components, one of which has multiple brands, indicates that the supply-level competition discourages joint selling of complementary goods. That is, when competing brands become more alike (or substitutable), complementary suppliers act more independently in pricing and selling their items. However, retail competition leads to an opposite effect: Competition among retailers would actually encourage complementary suppliers to package their goods together and act jointly