Sethi, Suresh P

Permanent URI for this collectionhttps://hdl.handle.net/10735.1/3642

Suresh Sethi holds the Eugene McDermott Chair and is Professor of Operations Management. He also is the Founder and Director of the Center for Intelligent Supply Networks. His research interests include:

Supply chain management
Partially observed inventory models
Hierarchical decisions in dynamic stochastic manufacturing systems
Dynamic and stochastic advertising models
Optimal pricing, development and maintenance of software
Decision, forecast, and rolling horizons in dynamic optimization problems
Scheduling and sequencing of robotic cells
Mathematical finance
Genuine savings and value of population

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Recipient of the 2020 Sushil K. Gupta POMS Distinguished Service Award from the Production and Operations Management Society (POMS).

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Advance Selling in the Presence of Market Power and Risk-Averse Consumers
(Wiley, 2018-07-18) Ma, Shanshan; Li, Guo; Sethi, Suresh P.; Zhao, Xuan; 0000-0001-9590-5627 (Sethi, SP); Sethi, Suresh P.
We consider a manufacturer who procures raw material through a long-term contract as well as in a spot market to produce goods for selling to consumers, a fraction of whom are risk averse. We assume that the manufacturer has the market power to influence the spot market price of raw material. To increase consumer demand and obtain demand information, the manufacturer may implement an advance selling program that depends on his market power and consumer risk aversion. We investigate whether the manufacturer should offer the advance selling program and how his decision and performance are influenced by the program. We find that the advance selling program should be offered when consumer risk aversion is low, or when it is high, and the manufacturer has high and low market power. By contrast, the advance selling program should not be offered when consumer risk aversion is high and the market power is medium. Our results also reveal that even with no promotion cost of the advance selling program, the manufacturer may not always offer it. Finally, the manufacturer benefits more from advance selling when consumers are myopic and/or risk neutral.
Advertising Competition with Market Expansion for Finite Horizon Firms
Bass, Frank M.; Krishnamoorthy, A.; Prasad, Ashutosh; Sethi, Suresh P.
Firms that want to increase the sales of their brands through advertising have the choice of capturing market share from their competitors through brand advertising, or increasing primary demand for the category through generic advertising. In this paper, differential game theory is used to analyze the effects of the two types of advertising decisions made by firms offering a product in a dynamic duopoly. Each firm's sales depend not only on its own and its competitor's brand advertising strategies, but also on the generic advertising expenditures of the two firms. Closed-loop Nash equilibrium solutions are obtained for symmetric and asymmetric competitors in a finite-horizon setting. The analysis for the symmetric case results in explicit solutions, and numerical techniques are employed to solve the problem for asymmetric firms.
Analysis of Product Rollover Strategies in the Presence of Strategic Customers
(INFORMS) Liang, Chao; Çakanyildirim, Metin; Sethi, Suresh P.
Frequent product introductions emphasize the importance of product rollover strategies. With single rollover, when a new product is introduced, the old product is phased out from the market. With dual rollover, the old product remains in the market along with the new product. Anticipating the introduction of the new product and the potential markdown of the old product, strategic customers may delay their purchases. We study the interaction between product rollover strategies and strategic customer purchasing behavior and find that single rollover is more valuable when the new product's innovation is low and the number of strategic customers is high. Interestingly and counter to intuition, the firm may have to charge a lower price for the old product as well as receive a lower profit with a higher value disposal (outside) option for the old product under single rollover. Facing a market composed of both strategic and myopic customers, the firm does not necessarily reduce the stocking level as more myopic customers become strategic.
Impact of Power Structures in a Subcontracting Assembly System
(Springer New York LLC) Li, G.; Li, L.; Liu, M.; Sethi, Suresh P.; Sethi, Suresh P.
We investigate the impact of power structures on the production and pricing strategies in a decentralized subcontracting assembly system consisting of two suppliers (key supplier and subcontractor) and one manufacturer (assembler). The key supplier, who is also the general contractor, negotiates with the manufacturer and assigns partial component production to the subcontractor. We first identify a single power regime (SPR), in which either the key supplier or the manufacturer determines the wholesale price or the order/production quantity. Under SPR, we consider three power structures, namely, KSA, KAS, and SKA. We find that the assembly system will substantially benefit under KAS. Results show that the subcontracting mechanism between the two suppliers can increase each firm’s profit and disperse the bargaining power. Such a decentralization of powers can weaken the horizontal decentralization between the suppliers and improve the system’s performance, thereby achieving a win–win situation. Furthermore, we extend our analysis to a dual power regime (DPR), in which the key supplier or the manufacturer decides on price and quantity. We show that the proposed assembly system performs optimally under DPR. Moreover, the system will benefit if the firm that is substantially near the end market makes the centralization decision. Compared with the classical pull and push contract model, the proposed assembly system provides the best performance under DPR. © 2018, Springer Science+Business Media, LLC, part of Springer Nature.
Online Market Entry and Channel Sharing Strategy with Direct Selling Diseconomies in the Sharing Economy Era
(Elsevier B.V., 2019-05-16) Li, G.; Zhang, X.; Chiu, S. -M; Liu, M.; Sethi, Suresh P.; Sethi, Suresh P.
Channel sharing is an important marketing strategy for giant retailers who sell their own store brands and resell national brands for cooperative manufacturers simultaneously. To expand their market and increase profitability, national brand manufacturers may consider entering the online market through direct selling. To counter such threats, retailers may adopt a channel sharing strategy on whether to terminate the national brand product-reselling business. We analyze three scenarios, namely, the base scenario (the retailer sells both brands), the dual channel scenario (the manufacturer enters the online market while the retailer sells both brands), and the termination scenario (each firm sells their own brand because of the retailer's termination of the reselling business) to investigate the strategic interactions between the retailer and the manufacturer. We find that the termination of channel sharing by the retailer is an ineffective threat to prevent the manufacturer from entering the online market when the direct selling diseconomy is relatively low; otherwise, the effectiveness of the retailer's threat hinges on the store brand's quality. Specifically, the retailer's threat is valid if the store brand products' quality is low, whereas such threat is invalid if the store brand's quality is high. Interestingly, our results also reveal that the retailer's profit suffers “a cliff-like drop” in the store brand's quality level. This finding suggests that selling a higher quality store brand may hurt the retailer's profit once the store brand's quality exceeds a certain threshold. ©2019 Elsevier B.V.
Relationship-Specific Investment and Hold-Up Problems in Supply Chains: Theory and Experiments
(Springer, 2018-07-20) Haruvy, Ernan; Katok, Elena; Ma, Zhongwen; Sethi, Suresh; 0000-0002-7037-7896 (Katok, E); Haruvy, Ernan; Katok, Elena; Ma, Zhongwen; Sethi, Suresh
Supply chains today routinely use third parties for many strategic activities, such as manufacturing, R&D, or software development. These activities often include relationship-specific investment on the part of the vendor, while final outcomes can be uncertain. Therefore, writing complete contracts for such arrangements is often not feasible, but incomplete contracts, especially when relationship-specific investment is required, may leave the supplier vulnerable to a version of the “hold-up problem,” which is known to result in sub-optimal levels of investment. We model the phenomenon as a sequential move game with asymmetric information. Absent behavioral considerations, the unique Perfect Bayesian Equilibrium implies zero investment. However, with social preferences, the hold-up problem may be mitigated. We propose a model that incorporates social preferences and random errors, and solve for the equilibrium. In addition, we look at reputation and find it to be effective for increasing investment. We conduct laboratory experiments with human subjects and find that a model with social preferences and random errors organizes our data well. © 2018, The Author(s).
Scheduling in Production, Supply Chain and Industry 4.0 Systems by Optimal Control: Fundamentals, State-of-the-Art and Applications
(Taylor & Francis Ltd, 2018-02-08) Dolgui, Alexandre; Ivanov, Dmitry; Sethi, Suresh P.; Sokolov, Boris; 0000-0001-9590-5627 (Sethi, SP); Sethi, Suresh P.
This paper presents a survey on the applications of optimal control to scheduling in production, supply chain and Industry 4.0 systems with a focus on the deterministic maximum principle. The first objective is to derive major contributions, application areas, limitations, as well as research and application recommendations for the future research. The second objective is to explain control engineering models in terms of industrial engineering and production management. To achieve these objectives, optimal control models, qualitative methods of performance analysis and computational methods for optimal control are considered. We provide a brief historic overview and clarify major mathematical fundamentals whereby the control engineering terms are brought into correspondence with industrial engineering and management. The survey allows the grouping of models with only terminal constraints with application to master production scheduling, models with hybrid terminal-logical constraints with applications to short term job and flow shop scheduling, and hybrid structural-terminal-logical constraints with applications to customised assembly systems such as Industry 4.0. Computational algorithms in state, control and adjoint variable spaces are discussed.
Sourcing Contract under Countervailing Incentives
(Wiley-Blackwell, 2019-05-25) Gan, X.; Feng, Q.; Sethi, Suresh P.; 0000-0001-9590-5627 (Sethi, SP); Sethi, Suresh P.
We study a retailer’s sourcing contract when the supplier’s reservation profit (offered by his outside options) depends on his cost, which is privately known to only the supplier. An interesting discovery from our analysis is that supply chain coordination may be achieved despite the information asymmetry between the two firms regarding the supplier’s type (i.e., his cost). This happens when the marginal contribution of the supplier’s cost efficiency to the trade matches with the supplier’s marginal reservation profit. In this case, the optimal contract quantities maximize the supply chain profits for the respective supplier types, and no information rent is paid to any supplier type. For the general case, we show that, regardless of his type, the supplier may have an incentive to overstate or understate his cost, depending on whether or not his marginal contribution to the trade exceeds his marginal reservation profit. We demonstrate six possible forms of the optimal contract. Observations from our analysis contrast with those derived from previous studies, complementing the theory of countervailing incentives. © 2019 Production and Operations Management Society
Strategic Remanufacturing under Competition
(De Gruyter, 2019-06-12) Ma, Zhongwen; Prasad, A.; Sethi, Suresh P.; 0000-0001-9590-5627 (Sethi, SP); Ma, Zhongwen; Sethi, Suresh P.
We investigate firms' remanufacturing strategies for the case of a duopoly. On the one hand, remanufactured products cannibalize sales of new products of the same firm thereby hurting its profits. On the other hand, they can be part of a profitable marketing strategy that targets different customer preferences by providing a larger number of alternatives to customers. This paper studies the tradeoff between these effects and how it is influenced by competition. We develop a model where demand functions for new and remanufactured products of each firm are derived from utility maximization by a representative consumer. This allows us to capture preference and substitution effects between all offered products in the market. We discuss how equilibrium strategies are affected by factors such as competition, substitutability, production cost as well as remanufacturing cost. For example, when competitive intensity between new and new products, and remanufactured and remanufactured products, is (high), both (neither) firms offer remanufactured products in a symmetric equilibrium. If substitution between new and remanufactured products of the same firm is low, but the remanufactured product has a lower margin than the new product, firms can be worse off from remanufacturing. © 2019 Walter de Gruyter GmbH, Berlin/Boston.

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