Supply Allocation in the Presence of Sequential Advance Demand Information

Abstract

We study the problem of allocating supply in the presence of advance demand information (ADI). In this problem, a company has to allocate a limited supply of inventory to different markets. To reduce uncertainty, the company acquires ADI about its highly volatile markets. However, information becomes available only in a sequential manner, shortly before a supply commitment to a market has to be made. We look into the value and the optimal usage of these information. Our research is motivated by an agri-food manufacturer that operates in several European countries. We use Markov Decision Processes to formulate the problem and develop an efficient algorithm for determining the optimal policy. We derive structural properties such as concavity to gain insights into problem dynamics and we develop the optimal policy in closed-form for the special case of identical prices between markets. We show that sequential availability of ADI significantly changes the problem characteristics and we use numerical experiments to demonstrate that the value of ADI can be significant. Managerial insights are, among others, that in situations of oversupply early markets receive systematically less supply than late markets and that strong price differences between markets reduce the value of ADI.

About the Presenter

Felix Papier is assistant professor in the Operations Management Department at ESSEC Business School in Paris, France. His research interests include supply chain and inventory management, energy management in operations, and rental fleet planning. He published articles in different academic and management journals such as Operations Research, Transportation Science, Operations Research Letters, and Harvard Business Manager, and presented his research at international conferences such as INFORMS, MSOM, IFORS, and INFORMS International. Felix Papier holds a PhD in operations research from the University of Cologne. He performed part of his PhD work at the Hong Kong University of Science and Technology. Before joining ESSEC, he worked for several years as a strategy and operations management consultant for McKinsey & Company.

more information about Prof. Felix Papier

About the Seminar

The KLU research seminar series is a regular meeting of PhD students, Post-Docs and professors who conduct research in the field of logistics and supply chain management. The research seminar is open to the public and we happily welcome guests.