Buyer's Order Research Articles

The Puzzling Persistence of the Fixed Price Offering: Implicit Price Discrimination in IPOs

This chapter for a book on the regulation of primary securities markets investigates the persistence of the fixed price offering in the United States. Fixed price offerings present a puzzle because economic theory suggests that sellers would maximize returns by offering IPO shares for sale at different prices depending upon characteristics of the buyer or the buyer's order. Contrary to this expectation, however, American companies uniformly sell IPO shares at a single fixed offering price. Moreover, this is true regardless of whether the shares are sold through the traditional book-building process or at auction. This phenomenon is not a function of the legal or regulatory structure governing public offerings in the United States, which neither mandates fixed price offerings nor bars price discrimination in IPOs. Instead, it appears to be a result of the market power of underwriters. A close examination of the offering process reveals a form of implicit price discrimination in which underwriters clearly engage - that is, the selective allocation of shares with resale restrictions. The chapter argues that underwriters favor implicit price discrimination over explicit price discrimination because the benefits of implicit price discrimination redound to the underwriter while explicit price discrimination would benefit issuers and eliminate an important (but hidden) component of underwriter compensation.

Concurrent pricing and lot sizing for make-to-order contract production

This paper develops a model for the simultaneous (i.e. concurrent) determination of the inventory and pricing policies of a supplier, which produces and supplies a product to a buyer, on the basis of a contractual agreement, calling for the delivery of a specific quantity periodically. Assuming that the customer is rational, i.e. it follows its own optimal purchasing policy, the objective of the supplier is to determine the product's selling price, in conjunction with an appropriate production/inventory policy, so that a predetermined gross profit level is achieved. It is further assumed that the supplier's production batch size is an integer multiple of the buyer's order quantity. In formulating a mathematical model of this situation, the interactions between the product's price, the buyer's economic order quantity and the supplier's selling price, costs and profit are taken into account. For solving this model, a simple iterative algorithm is proposed, which is illustrated through a numerical example. Sensitivity analysis performed on the model demonstrates that it is relatively robust and quite insensitive to errors in estimating the buyer's ordering to carrying cost ratio on the part of the producer.

Multi-period dynamic supply contracts with cancellation

This paper considers a class of multi-period dynamic supply contracts in which a buyer orders a product from a supplier in each period and the supplier allows the buyer to cancel a portion of an outstanding order with penalty during a planning horizon. We assume that both the buyer and the supplier have common knowledge. We first characterize the buyer's ordering and canceling policy that minimizes his expected cost during the planning horizon. We also characterize the supplier's optimal production policy under a very mild assumption on the costs of production and storage. Based on this structure, we then use simulation to show how the supplier chooses cancellation costs that minimize her expected cost during the planning horizon. Our simulation shows that both the buyer and the supplier would benefit from the contract.

A joint economic lot size model for raw material ordering, manufacturing setup, and finished goods delivering

In this research we consider a single-manufacturer single-buyer supply chain problem where the manufacturer orders raw materials from its supplier, then using its manufacturing processes converts the raw materials to finished goods, and finally delivers the finished goods to its customer. The manufacturer produces the product in batches at a finite rate and periodically delivers the finished goods at a fixed lot size to its customer, who has a constant demand rate. An integrated inventory control model, making joint economic lot sizes of manufacturer's raw material ordering, production batch, and buyer's ordering, is developed to minimize the mean total cost per unit time of the raw materials ordering and holding, manufacturer's setup and finished goods holding, the buyer's ordering, and inventory holding. Numerical examples are also setup to illustrate that jointly considering the inventory costs above results in less mean total cost than that of considering them separately.

Coordinated ordering decisions for short life cycle products with uncertainty in delivery time and demand

We consider a two-party system, in which the buyer orders a product from the supplier, whose delivery time is uncertain. The buyer is faced with random demand over a selling period of fixed length. The supplier aims to deliver the product at the start of the selling period, and if the delivery is late the buyer is compensated by the supplier. Our focus is on assessing the value and limitations of supplier–buyer coordination in coping with the uncertainty both in demand and delivery time.

An integrated single-vendor single-buyer inventory system with shortage derived algebraically

In previous modellings of the integrated vendor–buyer system for the shortage is the not-allowed case, a new approach to find the buyer's economic order quantity (EOQ ) and the vendor's optimal number of deliveries, using some slight algebraic developments, appeared. This paper extends the mentioned algebraic approach to the integrated vendor–buyer system for the shortage case. The theoretical result obtained here reveals that the integrated total cost with shortage is lower than the integrated total cost without shortage.

Partnership and negotiation support by joint optimal ordering/setup policies for JIT

Several studies have focused on the qualitative aspects of establishing and negotiating buyer–supplier partnerships, including Just-In-Time (JIT) supply, but few quantitative models and investigations are available in this area. We explore the two typical cases: supplier's dominance, with large production lot sizes and shipment sizes and buyer's dominance with small, frequent shipments. In each case, we compare the optimal shipment policy of the dominant party to the joint optimal policy. The savings or loss for each party and the total system cost improvements are computed which provide the quantitative support for negotiation, compromise, and compensation. We extend the quantitative results for different JIT scenarios. We assume that the buyer's order is delivered in n shipments of size q. The supplier's production lot size can also be an integer multiple of the shipment size, Q S= mq, and m can be different from n. Only the cases of m=1 and m= n were examined before. This extension can result in substantial savings. We analyze under which circumstances does the saving warrant the more complex setup policy and in which cases is a simpler policy's cost close to optimum.

The economic lot size of the integrated vendor‐buyer inventory system derived without derivatives

AbstractIn previous modellings of the integrated vendor–buyer system, the buyer's economic order quantity and the vendor's optimal number of deliveries are derived by setting the first derivatives to zero and solving the simultaneous equations. The Hessian matrix of second derivatives is used to prove the convexity of the objective function. This procedure can be difficult for students who lack the background of differential calculus. This study develops algebraically the optimal policy of the integrated vendor–buyer inventory system without using differential calculus. A significant cost reduction is also achieved when Goyal's model is modified. Copyright © 2002 John Wiley & Sons, Ltd.

Combined Optimal Price and Optimal Inventory Ordering Policy with Income Elasticity

In the present paper, the effect of income elasticity on de- mand has been considered and the buyer's optimal special order quan- tity and optimal time has been determined, when supplier reduces sale price then buyer may offer a discount to push his sale to increase his profit margin. Income elasticity effect in inventory analysis has been introduced to obtain the gain equation to find the optimal special or- der quantity and profit associated with it when remnant inventory is zero. The profit and optimal order quantity are also derived when rem- nant inventory is finite. The cost of saving was also determined when due to inflation rise in the sale price is imminent. Finally optimal in- ventory ordering policy has been discussed to get maximum profit.

Demand uncertainty and supplier's returns policies for a multi-store style-good retailer

As demand uncertainty grows in the marketplace, a critical issue today in most purchase contract negotiations between an independent retailer of a style-good and its supplier is the provision of a returns policy, i.e., a commitment by the supplier to buy back unsold inventory of the good at the end of its selling season. Management science research on the strategic role and optimal design of returns policies has grown in recent years but so far offers little treatment of how exactly the retailer's optimal order quantity decisions are affected by demand uncertainty and how a supplier's returns policy can influence these decisions. Employing the traditional “newsboy problem” modeling framework, the authors investigate these issues considering a supplier who faces a retailer with two or more store outlets with normally distributed and possibly correlated demands. To facilitate their analyses, the authors employ a methodology based on special error function representations of the highly nonlinear objective functions of the retailer and supplier. Utilizing this approach, the authors are able to provide explicit insights into how: (a) the buyer's total order quantity decision is affected by the variability in demand; (b) buyback prices in combination with wholesale prices can influence the buyer's order quantity response to demand uncertainty; (c) demand uncertainty moderates the effects of the buyback and wholesale prices; (d) supplier's optimal combination of actions are affected by demand variability; (e) retailer's and supplier's expected profits behave in response to changes in the supplier's actions under different levels of demand variability.

The effect of [formula omitted] ordering policy on the supply chain

In many supply chains, the variability of orders may considerably increase relative to the variability of the buyers' demand. This variability increase is largely an effect of the ordering policy. This phenomenon, which has become known as the bullwhip effect, makes supply chain planning difficult. We consider the following three basic elements of a supply chain: the purchase orders of the individual retailers, the aggregate orders of the retailers, and the supplier's ordering/production policy. A complex multi-echelon distribution system can also be analyzed by combining these elements. We investigate how the (s, S) policy parameters, the demand parameters, and the cost coefficients influence the variability of the orders by using approximations to the exact quantitative models. The accuracy of the approximations is acceptable in most cases of practical importance. We show how demand correlation can decrease the variability of aggregate orders, and how autocorrelation in buyer's orders can smooth the supplier's ordering policy. However, these variability reductions are usually not considerable. Small frequent orders can reduce the effect of high variability and the resulting uncertainty.

A game theoretical analysis of the quantity discount problem with perfect and incomplete information about the buyer's cost structure

In this paper, we analyze the quantity discount problem by considering the competitive nature of the problem and the informational structure regarding the buyer's cost structure. We formulate the problem as two-person nonzero-sum game and analyze the seller's optimal quantity discount schedule and the buyer's optimal order quantity by using Stackelberg equilibrium. We show that it is always possible for the seller and the buyer to gain from quantity discount. However, a quantity discount schedule under which the buyer orders more than his EOQ at the discounted price is necessary for the seller and the buyer to gain. The optimal quantity discount schedule when the seller knows the buyer's cost parameters is given by a single break point. When the seller does not know the buyer's cost parameters, an optimal quantity discount schedule may not exist. Two approaches have been developed for the seller to offer quantity discount in this case. The application of our analysis is discussed. Our results can be especially useful when the seller has many buyers.

Database law

In a one-supplier-one-buyer supply chain, uncertainty occurs not only at the demand side, but also at the supply side, which is commonly observed in business. Optimization and coordination of such a supply chain is rarely investigated in literature, especially with service requirement. In this paper we model the supply chain with revenue sharing contract and service requirement under supply and demand uncertainty. Firstly, we derive the buyer's and the supplier's optimal policies, and find the conditions to coordinate the supply chain. Secondly, we prove that the buyer's and the supplier's optimal quantities are both non-decreasing of the service requirement. We also find there exists an optimal supply quantity for the supplier, if the buyer's ordering quantity based on her service requirement exceeds the supplier's optimal supply quantity, then the supplier's profit is a non-increasing function of the buyer's order quantity; otherwise, the supplier's profit is a non-decreasing function of the buyer's order quantity. Thirdly, by comparing with the benchmark supply chain model where only demand uncertainty is considered, we find that in the coordinated supply chain under supply and demand uncertainty, the revenue sharing ratio for the supplier will be higher if the wholesale price remains the same, or the wholesale price will be higher if the revenue sharing ratio for the supplier keeps the same.

Sales. Substantial Performance. Action for Price of Tank Built on Buyer's Order Where Performance Defective

Sales. Substantial Performance. Action for Price of Tank Built on Buyer's Order Where Performance Defective