Xiao Alison Chen, assistant professor of decision sciences, studies revenue management and pricing behavior that takes place in supply chain settings involving suppliers and retailers.
In a typical scenario, which is much like a game of chess, the retailer makes an optimal ordering decision to minimize inventory cost based on the supplier’s price. The supplier, on the other hand, chooses an optimal price to maximize the profit. Chen says her research “helps to illuminate the effects of market demand and cost parameters on the optimal pricing and ordering decisions.”
Analyzing variables such as demand, inventory costs and market price, Chen extends the current literature on pricing from a single- to a multi-period model. In a single-period model, the goods sold only have value during one selling period. In a multi-period model, the goods sold have value over multiple over multiple days, weeks, months or years. Therefore, inventory can be carried to the next period.
The multi-period model benefits retailers and suppliers alike.
“Suppliers can see how they might price their products over a longer time, implementing gradual discounts to loyal customers,” says Chen. “Retailers may derive the supply chain’s profit allocation ratio to determine the maximum percentage of the total profit that could be theirs. If they’re below their ceiling, they can improve their ordering strategies.”