Backup agreements in fashion buying - the value of upstream flexibility

Article Abstract:

Backup agreements offer upstream sourcing flexibility for fashion merchandise. In these agreements, the catalog company promises to buy a specific number of units for a season before the catalogue is mailed while the manufacturing vendor consents to reserve a percentage of these units and deliver the remaining units before mailing the catalogue. The catalog company can purchase any or all of the backup items at the original purchase cost but has to pay a penalty cost for each unit not taken from backup. This inventory problem is modeled and the optimal solution is obtained. This stochastic dynamic programming model of the backup agreement indicates the optimal form of the ordering policy and supports the idea that the optimal commitment is higher than or equal to the optimal order quantity in certain situations. A retrospective parallel test of the model against was conducted using data from the women's fashion department of a catalog company.

Electronic Shopping and Mail-Order Houses, APPAREL AND OTHER TEXTILE PRODUCTS, Catalog and mail-order houses, Apparel & Related Products, Apparel Manufacturing, Apparel Mail Order, Purchasing, Contracts, Mail-order industry, Mail order business, Clothing industry, Factory orders, Mail order clothing business, Fashion merchandising, Logistics

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Capital rationing and organizational slack in capital budgeting

Article Abstract:

Capital budgeting is analyzed in relation to organizational slack, resource rationing, and internal capital project rates compared to external market rates of interest. Organizational slack refers to the portion of resources allocated to a capital project that exceed the required amount of resources, and resource rationing refers to projects that are underallocated. These inefficient resource allocation problems are modeled using linear programming methods. The model demonstrates that optimal resource allocations involve offsetting amounts of organizational slack and resource rationing.

Economic aspects, Capital investments, Organizational effectiveness, Business budgets, Capital budgets

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Determining safety stock in the presence of stochastic lead time and demand

Article Abstract:

The problem of setting safety stock when both the lead time and the demand in a period are random variables is addressed. In one case the parameters of the demand and lead time are unknown and must be estimated, in the other case they are known. When the parameters are unknown, discrete distribution of the lead time can be developed from historical data and a simple exponential smoothing model is used to generate estimates of demand in each period. For known parameters, the researchers have adjusted the standard procedure to yield the desired results.

Operations research, Research, Management science, Stochastic analysis, Scheduling (Management), Production control, Queuing theory, Stochastic approximation

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