June 13, 2017 - June 13, 2017
3:30 pm – 4:30 pm
Dr. Nikolay Osadchiy
Optimal Timing of Inventory Decisions with Price Uncertainty
What is the optimal time for a firm to buy inventory to sell in a market where demand and selling price are both uncertain, if the information about them improves with time, but the procurement cost increases with time? What is the value of timing flexibility to the firm? What lead times would a supplier see? To answer these questions, we develop a continuous time inventory model where demand and price are realized at time $T$, and the inventory decision can be made at any time in the interval [0,T], with progressively more accurate information about time $T$ price and demand, but increasing unit purchasing cost, and the option not to purchase inventory. Our model captures the key sources of value of timing flexibility: (i) volatility reduction through learning about future price and demand, and (ii) the option to forego an unprofitable investment. We show that the optimal timing of the inventory ordering decision follows a double-threshold policy in the price variable and is independent of demand. The optimal order quantity depends on both price and demand. Given this policy structure, we evaluate the benefits of timing flexibility using the best pre-committed order timing policy as the benchmark. In the presence of price volatility, the time-flexible inventory policy leads to higher profit margins and creates an opportunity for the supplier and buyer firms in situations where profit margin is too low for them to transact under static postponement policies.
Nikolay Osadchiy is an Assistant Professor at the Department of Information Systems and Operations Management of the Emory University Goizueta Business School. His research interests are in supply chain management, where he studies how supply networks affect risk and operational performance, and in revenue management where he studies the impact of behavioral regularities on pricing. He has published in the leading academic journals including Management Science, Operations Research, and Production and Operations Management. Nikolay holds a PhD in Operations Management from the New York University Stern School of Business and MS in Applied Mathematics and Physics from Moscow Institute of Physics and Technology.
Location: TU/e, Building 62, Paviljoen F9. Feel free to join, if you are interested!
Eindhoven University of Technology