Three essays in operations management

Abstract

The thesis applies optimization theory to three problems in operations management. In the first part of the thesis, we investigate the impact of inventory control on the availability of drugs to patients at public health facilities in Zambia. We present consistent empirical data and simulation results showing that, because of its failure to properly anticipate seasonal variations in demand and supply lead-times, this system leads to predictable patient-level stock-outs even when there is ample inventory available in the central warehouse. Secondly, we propose an alternative inventory control system relying on mobile devices and mathematical optimization, and present results from a validated simulation model suggesting that its implementation would lead to a substantial improvement of patient access to drugs relative to the current system. In the second part of the thesis, we investigate the impact of returning customers on pricing for fashion Internet retailers. Our analysis of clickstream data from an online fashion retailer shows that a significant proportion of sales is due to returning customers, i.e. customers who first visit an item at a particular price, but purchase the item in a later visit at a lower price. We propose a markdown pricing model that explicitly incorporates returning customers. We propose a model for quantifying the value of the returning pricing model relative to a pricing model that does not distinguish between first-time and returning customers, and determine the value of returning pricing both exactly and through developing bounds. Based on real data from a fashion Internet retailer, we estimate the parameters of the returning demand model and determine the value of the returning pricing model. Lastly, we study the promotion optimization problem faced by grocery retailers, i.e. deciding which items to promote and at what price. Our formulation includes several business rules that arise in practice. We build demand models from data in order to capture the stockpiling behavior through dependence on past prices. This gives rise to a hard problem. For general additive and multiplicative demand structures, we propose efficient LP based methods, show theoretical performance guarantees and validate our results using real data.