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"The Bayesian Newsvendors in Supply Chains with Unobserved Lost Sales"

David Glenn, Arnab Bisi, and Martin L. Puterman

 

First Author :

David Glenn
Business Administration
University of Illinois at Urbana-Champaign
1206 S. Sixth Street, M/C 706
Champaign, IL 61820
USA

217-265-0719

dglenn@uiuc.edu

http://www.business.uiuc.edu/faculty/glenn.html


Second Author :

Arnab Bisi
Commerce and Business Administration
University of British Columbia
2053 Main Mall
Vancouver, BC V6T1Z2
Canada


Third Author :

Martin L. Puterman
Commerce and Business Administration
University of British Columbia
2053 Main Mall
Vancouver, BA V6T1Z2
Canada

 
 
Abstract :
 
We consider two-echelon supply chains with one supplier and two retailers. Retailers are censored newsvendors facing general parametric demand distributions involving unknown parameters. Using a Bayesian MDP formulation, we investigate how the supplier can make use of the combined information gathered from the retailers’ sales data to increase channel profits. We compare among the following three scenarios: (i) supplier shares her (pooled) demand distribution updates with the retailers, (ii) supplier does not use pooled updates, and (iii) integrated firm. We show that buy-back contracts achieve channel coordination in the above system.
 
 
Keywords :
 
Bayesian Markov decision processes, Censoring, Demand estimation, Inventory, Lost sales, Myopic policy, Supply chain
 
 
Manuscript Received : 2004
Manuscript Published : August 2, 2004
 
 
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