DBM - Demand Based Management Prof zalp zer Stanford...

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2008-04-16 © Özalp Özer Demand Based Management Demand Based Management Prof. Özalp Özer Stanford University April 16, 2008 MS&E 262
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2008-04-16 © Özalp Özer Outline of Presentation Outline of Presentation Introduction, Definitions Supply Chain Management vs. Demand Based Management Dynamic Pricing: Retail Example Industrial Example Four-step process Examples: Hitachi GST, New Product Introduction Lead Time Optimization Summary
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2008-04-16 © Özalp Özer Introduction & Definitions Introduction & Definitions Supply Chain Management: Inventory Management Collaboration Postponement Demand Based Management: Pricing and Revenue Management Lead Time Management Service Management Contract Terms ...
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2008-04-16 © Özalp Özer Synergy Expected Synergy Expected Supply Chain Management Demand Based Management Strong Strong Weak Weak Source: adapted from Hau L. Lee, Ultimate Enterprise Value Creation Using Demand-Based Management, Sept. 2001
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2008-04-16 © Özalp Özer Data Mining Data Mining Behavioral relationships can be discovered from massive amounts of data There is gold in those mines of data!
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2008-04-16 © Özalp Özer Example: Ford Sales Incentives Example: Ford Sales Incentives Truck Buyer, Texas Taurus Buyer, New England $1000 cash back Lower Interest rate (Both alternatives have same present value)
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2008-04-16 © Özalp Özer Pricing and Revenue Management: Analytics Pricing and Revenue Management: Analytics Analytical models: “mine” historical data estimate price-elasticities of demand recommend price adjustments to optimize desired goals
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2008-04-16 © Özalp Özer How Dynamic Pricing works How Dynamic Pricing works Oral Care SKU Elasticity Coefficients for Store 21 0 100 200 300 400 500 600 1 17 33 49 65 81 97 113 129 145 161 177 193 209 225 241 257 273 289 305 321 337 353 369 385 401 417 433 449 465 481 497 513 529 SKU's Indexed Elasticity Coefficient Average = 100 Elasticity varies dramatically across a Category Source (of this and the next group of slides): DemandTec
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2008-04-16 © Özalp Özer Another view . .. Another view . .. Elasticity Coefficients for Mentadent Procare XSoft Toothbrush Across Stores 0 50 100 150 200 250 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 Stores Indexed Elasticity Average = 100 It also varies across stores, for a single item…
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2008-04-16 © Özalp Özer Conventional Wisdom: Net Profit in Consumer Conventional Wisdom: Net Profit in Consumer Products Retail Is Under 2% Products Retail Is Under 2% Net Profit Dollars per SKU Sales Dollars per Store per Week 0% 2% 4% 6% 8% 10% 12% -2% -4% -6% -8% -10% -12% Net Profit Dollars per SKU Net Profit Dollars Per SKU 12% 0% -12% Sales Dollars per Store per Week
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2008-04-16 © Özalp Özer But Profit Actually Varies Widely by SKU But Profit Actually Varies Widely by SKU Net Profit Dollars per SKU Sales Dollars per Store per Week 0% 2% 4% 6% 8% 10% 12% -2% -4% -6% -8% -10% -12% Net Profit Dollars Per SKU 12% 0% -12% Sales Dollars per Store per Week
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2008-04-16 © Özalp Özer And the best items are in the upper right And the best items are in the upper right WORST BEST Net Profit Dollars per SKU Sales Dollars per Store per Week 0% 2% 4% 6% 8% 10% 12% -2% -4% -6% -8% -10% -12% Net Profit Dollars Per SKU 12% 0% -12% Sales Dollars per Store per Week
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DBM - Demand Based Management Prof zalp zer Stanford...

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