Optimal Service Level Research Articles

An analysis of a supply chain with options contracts and service requirements

This article studies a one-period two-party supply chain with a service requirement. At the beginning of a single retail season, the retailer can obtain goods by either ordering from a firm or by purchasing and exercising call options. The retailer’s optimal ordering policy and the supplier’s optimal production policy are derived in the presence of options contracts and a service requirement. In addition, it is shown that options contracts benefit both the retailer and supplier. Furthermore, it is shown that the retailer’s optimal expected profit is non-increasing in the service requirement and the supplier’s optimal expected profit is non-decreasing in the service requirement, either with or without options contracts. A special class of distribution-free contracts that can coordinate the supply chain with options contracts and the service requirement are derived. Furthermore, as opposed to the case of non-coordinating contracts, it is shown that there is always a Pareto contract. Finally, the retailer’s and supply chain’s optimal service level are derived.

적정연계환승체계를 감안한 역세권개발방안에 관한 연구

This study suggests 3 different elements to develop a rail station-influenced area effectively. Above all, several typical models of TOD (Transit Oriented Development)are suggested. They consider the land use types around a rail station, characteristics of a rail station whether it serves a single line or multiple lines. a method of developing a rail station-influenced area. Secondly, the optimal level of service is suggested for connection facility and access modes. Finally, the allocation criteria of on-and-off facility to provide convenient transfer activity.

Designing Service Level Contracts for Supply Chain Coordination

Supply contracts are used to coordinate the activities of the supply chain partners. In many industries, service level‐based supply contracts are commonly used. Under such a contract, a company agrees to achieve a certain service level and to pay a financial penalty if it misses it. The service level used in our study refers to the fraction of a manufacturer's demand filled by the supplier. We analyze two types of service level‐based supply contracts that are designed by a manufacturer and offered to a supplier. The first type of contract is a flat penalty contract, under which the supplier pays a fixed penalty to the manufacturer in each period in which the contract service level is not achieved. The second type of contract is a unit penalty contract, under which a penalty is due for each unit delivered fewer than specified by the parameters of the contract. We show how the supplier responds to the contracts and how the contract parameters can be chosen, such that the supply chain is coordinated. We also derive structural results about optimal values of the contract parameters, provide numerical results, and connect our service level measures to traditional service level measures. The results of our analyses can be used by decision makers to design optimal service level contracts and to provide them with a solid foundation for contract negotiations.

Inventory control for point-of-use locations in hospitals

Most inventory management systems at hospital departments are characterised by lost sales, periodic reviews with short lead times, and limited storage capacity. We develop two types of exact models that deal with all these characteristics. In a capacity model, the service level is maximised subject to a capacity restriction, and in a service model the required capacity is minimised subject to a service level restriction. We also formulate approximation models applicable for any lost-sales inventory system (cost objective, no lead time restrictions etc). For the capacity model, we develop a simple inventory rule to set the reorder levels and order quantities. Numerical results for this inventory rule show an average deviation of 1% from the optimal service levels. We also embed the single-item models in a multi-item system. Furthermore, we compare the performance of fixed order size replenishment policies and (R, s, S) policies.

Is Mandatory Project Evaluation Always Appropriate? Dynamic Inconsistencies of Irreversible and Reversible Projects

Benefit-cost analysis (BCA) is used to optimize investment in public projects. Indeed, in many countries, BCA is mandatory for provision of most public services. However, once BCA is mandated, residents can strategically alter their behaviors based on a dynamic inconsistency that the BCA-based optimal service level depends on residents’ behaviors. This paper discusses this dynamic inconsistency problem, taking transportation services as an example. We show that the problem may decrease both social welfare and the utility of residents as compared with the first-best case, and that the occurrence of second-best outcomes depends on the reversibility of the project and the general-equilibrium interdependency with another project.

Probabilistic versus possibilistic risk assessment models for optimal service level agreements in grid computing

We present a probabilistic and a possibilistic model for assessing the risk of a service level agreement for a computing task in a cluster/grid environment. These models can also be applied to cloud computing. Using the predictive probabilistic approach we develop a framework for resource management in grid computing, and by introducing an upper limit for the number of failures we approximate the probability that a particular computing task is successful. In the predictive possibility model we estimate the possibility distribution of the future number of node failures by a fuzzy nonparametric regression technique. Then the resource provider can use the probabilistic or the possibilistic model to get alternative risk assessments.

Service guarantee and optimal payout models

Abstract This paper evaluates both the optimal service level and optimal economic payout in service payout models. A service guarantee level is explicitly taken into consideration to obtain the optimal payout. In this study, we consider a generic model to provide insights into the dynamic interaction between the service guarantee and optimal payout levels. Parametric analyses show that when the demand payout coefficient is high, the impact of the payout is positive only if the payout rate is high enough.

Salesforce Contracting Under Demand Censorship

We study salesforce contracting in an environment where excess demand results in lost sales and the demand information is censored by the inventory level. In our model, a firm contracts with a risk-neutral sales agent with limited liability whose effort increases the demand stochastically. The firm designs the incentive contract and invests in inventory; the agent decides the sales effort. We find that the sales-quota-based bonus contract is optimal in such an environment, and the quota should be set equal to the inventory level when the first-best solution is not attainable. We further reveal that demand censorship can introduce peculiar effects on the optimal sales effort and service level that the firm implements. From our analysis of the additive and multiplicative effort cases, we find that in the additive effort case, it can be optimal, under demand censorship, for the firm to induce an effort and maintain a service level both greater than those under the first-best solution. Scenarios also exist where the firm should induce zero effort. For the multiplicative effort case, the optimal sales effort under demand censorship is lower than the first-best effort, whereas the optimal service level is higher than the first-best service level. The agent earns zero rent in the additive effort case but may earn a positive rent in the multiplicative effort case. Finally, our numerical analysis shows that demand censorship can have a significant negative impact on the value of contracting with the sales agent, especially when the sales margin is low and the market uncertainty is high.

Revenue management model for on-demand IT services

This paper presents a model for applying revenue management to on-demand IT services. The multinomial logit model is used to describe customer choice over multiple classes with different service-level agreements (SLAs). A nonlinear programming model is provided to determine the optimal price or service level for each class. Through a numerical analysis, we examine the impacts of system capacity and customer waiting incentives on the service provider’s profit and pricing strategies.

Which utilization and service level lead to the maximum EVA?

In this paper a model for evaluating the influence of utilization, WIP, FGI, service level and production lead time on EVA (economic value added) is developed in order to link the available logistical key figures with a market perspective and discuss their influence on company value. The question answered in this paper is: What is the optimal utilization and service level of a production system in order to achieve the maximum possible EVA for a company? A single-product, single-machine, make-to-order production system with investment dependent machine capacity is modeled. The model combines a market share concept based on delivery/production lead time and service level with concepts describing the logistical relationships between WIP, utilization, production lead time and service level. In addition to the explanatory use of the model, it can provide support for strategic decisions concerning investing or divesting machinery. The main application of this model is in describing the link between capacity investment and company value comprehensively based on data available from cost accounting in real companies. Furthermore, this paper shows that high flexibility of personnel and machine capacity increases the maximum possible EVA of production systems even if this flexibility is linked to additional costs.

A bridge network maintenance framework for Pareto optimization of stakeholders/users costs

For managing highway bridges, stakeholders require efficient and practical decision making techniques. In a context of limited bridge management budget, it is crucial to determine the most effective breakdown of financial resources over the different structures of a bridge network. Bridge management systems (BMSs) have been developed for such a purpose. However, they generally rely on an individual approach. The influence of the position of bridges in the transportation network, the consequences of inadequate service for the network users, due to maintenance actions or bridge failure, are not taken into consideration. Therefore, maintenance strategies obtained with current BMSs do not necessarily lead to an optimal level of service (LOS) of the bridge network for the users of the transportation network. Besides, the assessment of the structural performance of highway bridges usually requires the access to the geometrical and mechanical properties of its components. Such information might not be available for all structures in a bridge network for which managers try to schedule and prioritize maintenance strategies. On the contrary, visual inspections are performed regularly and information is generally available for all structures of the bridge network. The objective of this paper is threefold (i) propose an advanced network-level bridge management system considering the position of each bridge in the transportation network, (ii) use information obtained at visual inspections to assess the performance of bridges, and (iii) compare optimal maintenance strategies, obtained with a genetic algorithm, when considering interests of users and bridge owner either separately as conflicting criteria, or simultaneously as a common interest for the whole community. In each case, safety and serviceability aspects are taken into account in the model when determining optimal strategies. The theoretical and numerical developments are applied on a French bridge network.

After-sales service competition in a supply chain: Optimization of customer satisfaction level or profit or both?

For durable consumer products, after-sales services play an important role in customers’ purchase decisions. A manufacturer offers basic warranty available to all customers who buy the product, while a retailer offers optional after-sales service that is available only to customers who pay for the option. We explore the interaction of these two after-sales services assuming two customer segments. Formulating five analytical models, we found that after-sales service plans that are determined to maximize profits do not match optimal after-sales service levels that can satisfy customers the most.

Service level, pricing strategy and firm performance in a manufacturer‐giant retailer supply chain

Purpose – The purpose of this paper is to provide a framework to help the manufacturer and the giant retailer to obtain optimal service level, pricing strategy, and market structure in order to maximize their respective profits.Design/methodology/approach – A profit‐maximization model is developed to determine the optimal service level, pricing strategy, and market structure for supply chain players.Findings – Using a profit‐maximization model, it is demonstrated that optimal service level and pricing strategy exist under different market structures in a manufacturer‐giant retailer supply chain. In order to maximize their respective profits, the manufacturer and the giant retailer should cooperatively employ a coordinative market structure as an optimal market structure and a bargaining model can be utilized to implement profit sharing for the manufacturer and giant retailer to optimize their profits. Furthermore, it is also shown that the value of coordinative structure always increases with the customer...

“Call for Prices”: Strategic Implications of Raising Consumers' Costs

Many consumer durable retailers often do not advertise their prices and instead ask consumers to call them for prices. It is easy to see that this practice increases the consumers' cost of learning the prices of products they are considering, yet firms commonly use such practices. Not advertising prices may reduce the firm's advertising costs, but the strategic effects of doing so are not clear. Our objective is to examine the strategic effects of this practice. In particular, how does making price discovery more difficult for consumers affect competing retailers' price, service decisions, and profits? We develop a model in which a manufacturer sells its product through a high-service retailer and a low-service retailer. Consumers can purchase the retail service at the high-end retailer and purchase the product at the competing low-end retailer. Therefore, the high-end retailer faces a free-riding problem. A retailer first chooses its optimal service levels. Then, it chooses its optimal price levels. Finally, a retailer decides whether to advertise its prices. The model results in four structures: (1) both retailers advertise prices, (2) only the low-service retailer advertises price, (3) only the high-service retailer advertises price, and (4) neither retailer advertises price. We find that when a retailer does not advertise its price and makes price discovery more difficult for consumers, the competition between the retailers is less intense. However, the retailer is forced to charge a lower price. In addition, if the competing retailer does advertise its prices, then the competing retailer enjoys higher profit margins. We identify conditions under which each of the above four structures is an equilibrium and show that a low-service retailer not advertising its price is a more likely outcome than a high-service retailer doing so. We then solve the manufacturer's problem and find that there are several instances when a retailer's advertising decisions are different from what the manufacturer would want. We describe the nature of this channel coordination problem and identify some solutions.

Pricing, service level and lot size decisions of a supply chain with risk-averse retailers: implications to practitioners

This article develops a game theoretic model of a supply chain with one supplier and two risk-averse retailers competing in price, service and lot size, where the Economic Order Quantity (EOQ) production-inventory policy is adopted. After studying the existence of EOQ equilibrium, we investigate how to adjust their decisions when the economic environment changes. We find that one retailer will decrease its optimal lot size, retail price and service level when it becomes more risk averse or its service investment efficiency decreases. When the supplier's capacity increases, the retailers will reduce retail price and increase service level, which in turn results in a higher lot size. The effect of the risk sensitivity of one retailer on the rival retailer's decisions depends on the relative service cost efficiency of the retailer. When the absolute risk aversion and service investment efficiency of one retailer increase, the supplier's profitability will increase due to a higher total expected demand. We further give the managerial insights for practitioners, which helps managers to make right decisions in an uncertain environment.

Strategic analysis methodology for energy systems with remote island case study

A strategic analysis methodology is presented for adaptive energy systems engineering to realize an optimal level of service in the context of a community's social, economic, and environmental position. The groundwork stage involves characterizing the social context, assessing available energy resources, identifying environmental issues, setting eco-resource limits, and quantifying socio-economic constraints for a given region. A spectrum of development options is then constructed according to the range of energy service levels identified for the sector under study. A spectrum of conceptual energy systems is generated and infrastructure investments and resource use are modeled. The outcome is a matrix of energy system investment possibilities for the range of energy demand levels reflecting the values, ideas, and expectations expressed by the community. These models are then used to assess technical feasibility and economic, environmental and social risk. The result is an easily understood graphical depiction of local aspirations, investment options, and risks which clearly differentiates development opportunities from non-viable concepts. The approach was applied to a case study on Rotuma, an isolated Pacific Island. The case study results show a clear development opportunity space for Rotuma where desired energy services are in balance with investment sources, resource availability, and environmental constraints.

Planning the optimal level of local maternity service for small rural communities: A systems study in British Columbia

To develop and apply a population isolation model to define the appropriate level of maternity service for rural communities in British Columbia, Canada. Iterative, mathematical model development supported by extensive multi-methods research in 23 rural and isolated communities in British Columbia, Canada, which were selected for representative variance in population demographics and isolation. Main outcome measure was the Rural Birth Index (RBI) score for 42 communities in rural British Columbia. In rural communities with 1h catchment populations of under 25,000 the RBI score matched the existing level of service in 33 of 42 (79%) communities. Inappropriate service for the rural population was postulated and supported by qualitative data available on 6 of the remaining 9 communities. The RBI is a potentially pragmatic tool in British Columbia to help policy makers define the appropriate level of maternity service for a given rural population. The conceptual structure of the model has broad applicability to health service planning problems in other jurisdictions.

Constructal theory of pedestrian dynamics

The standard benefit of modeling pedestrian streams is the ability to quantify and understand flow patterns, which can be helpful to avoid some potentially dangerous situations. Here we show that the most basic features of pedestrian dynamics can be put on a unifying theoretical basis, which is provided by the constructal law. This law states that every flow system evolves in time so that it develops the flow architecture that maximizes flow access under the constraints posed to the flow. In this Letter, we develop a model of pedestrian streams that accounts for the influence of pedestrian density. The constructal law is invoked in order to quantify both the so-called optimal level of service and system capacity for pedestrian streams.

Escalating Costs of Cancer Treatment: The Local Effect of a Global Reality

While incidence of cancer has been increasing worldwide, so has the cost of cancer treatment. As newer anti-cancer drugs and diagnostic tools have become available, the results of pharmacoeconomic studies have also become more important in the recent years, in guiding cancer treatment policies and reimbursement decisions.In Brazil, there will be more than 466,000 new cases of cancer in 2008. In this very populated developing country, health policy makers and administrators of private and public health services are becoming increasingly concerned about the cost of cancer treatment.This health economic project utilized the database of Unimed, a private health care plan which is the biggest in the southern Brazil. The Unimed health plan has over 45,000 clients & 300,000 users in Cascavel region.The cost of oncology drugs from 2003 to 2007 at two cancer treatment centers in the region was analyzed. The results showed a progressive increase in the expenses at these centers.Over the period of 5 years, the claims for oncology drug increased 4 fold in one center, and an astronomical 13 fold in the other center. By 2007 the total cost of oncology drugs exceeded US$ 600,000 & US$ 1 million in these 2 oncology centers. Details of the population treated, average cost per patients etc over this period will be presented in the full poster.While only about 20% (40 million) of the population of Brazil are covered by such private health plans, the dramatic increase of cancer treatment costs seen within this health plan of a single patient population puts in perspective the concerns and funding pressures facing health plans in Brazil, and perhaps the rest of the world.There is a need for more robust pharmacoeconomic studies to provide clearer treatment guidance and for formulating healthcare policies, so that patients receive better treatment outcomes. A comprehensive Health Technology Assessment processes may also help to streamline how private and state health plans cover such newer treatments, thereby enabling them to provide optimal level of care and services to their patients.In conclusion, these local Brazilian data confirms that escalating cost of cancer treatment is also a reality in the developing world. Without the support of strong health economic data, it may become increasingly challenging for cancer patients in Brazil to have access to these newer cancer medications.

Using GIS to evaluate post-release prisoner services in Newark, New Jersey

Discharge planning is increasingly prioritized by correctional systems in order to prepare prisoners for their reintegration into society. A goal of discharge planning is to link prisoners with appropriate service providers in the community to meet their needs. A successful discharge plan requires that an optimal level of services exist and work in a coordinated and collaborative way in order to ensure a continuum of care and treatment during the reentry process (Queralt & Witte, 1999). This study utilized Geographic Information System (GIS) to assess the size, demographic characteristics, and needs of the Newark, New Jersey parolee population with the availability, location, and characteristics of health and human service agencies servicing their needs. A random sample of parolees (N = 800) released in 2006 was selected for this study. Social service agency data were obtained from an on-line service agency data base. Results of the analysis include the degree of spatial distribution, accessibility, and availability of services to where the parolees live and the degree of spatial overlap of specific services in an area.