Table of Contents

Pass-through Constrained Vendor Funds for Promotion Planning

Lennart Baardman, Massachusetts Institute of Technology (MIT) - Operations Research Center
Kiran Panchamgam, Oracle Retail Science
Georgia Perakis, Massachusetts Institute of Technology (MIT) - Sloan School of Management


FINANCIAL ENGINEERING eJOURNAL

"Pass-through Constrained Vendor Funds for Promotion Planning" Free Download

LENNART BAARDMAN, Massachusetts Institute of Technology (MIT) - Operations Research Center
Email:
KIRAN PANCHAMGAM, Oracle Retail Science
Email:
GEORGIA PERAKIS, Massachusetts Institute of Technology (MIT) - Sloan School of Management
Email:

We analyze how pass-through constrained vendor funds impact promotion planning of both suppliers and retailers. Vendor funds are trade deals in which a supplier offers a retailer a short-term discount on a specific product, encouraging the retailer to discount the product. Past vendor funds have had significant shortcomings. In this paper, we propose the pass-through constrained vendor fund in which the supplier requires the retailer to pass-through a minimal fraction of the discount. The vendor fund offer and selection problem is modeled as a bi-level optimization problem in which a supplier wishes to determine what pass- through constrained vendor fund to offer to a retailer that can accept or reject the offer. First, we formulate the lower-level retailer model as an integer quadratic optimization model to help retailers decide on which vendor funds to accept. Using Lagrangian relaxation methods we create an efficient algorithm with theoretical guarantees and near-optimal performance on Oracle Retail client data. Second, we analyze a bi-level supplier model to determine which vendor fund a supplier should offer. We show that the vendor fund with pass- through constraint mitigates forward-buying by the retailer and coordinates supply chains on the short-term.

^top

About this eJournal

This eJournal distributes working and accepted paper abstracts related to development and employment of quantitative techniques to further our understanding of financial markets, instruments, and strategies. The eJournal welcomes research with a focus on advancing the theory or practice of financial engineering in endowments, hedge funds, insurance firms, investment and commercial banks, pension funds, and personal financial and retirement planning. Topics of interest include, but are not limited to, econometric analysis of financial data, enterprise risk management, investment and consumption models, optimal portfolio, pricing and hedging of financial instruments, as well as innovative empirical studies, analytical models, and mathematical algorithms in credit, energy, fixed-income and other markets.

Submissions

To submit your research to SSRN, sign in to the SSRN User HeadQuarters, click the My Papers link on left menu and then the Start New Submission button at top of page.

Distribution Services

If your organization is interested in increasing readership for its research by starting a Research Paper Series, or sponsoring a Subject Matter eJournal, please email: RPS@SSRN.com

Distributed by

Management Research Network (MRN), a division of Social Science Electronic Publishing (SSEP) and Social Science Research Network (SSRN)

Directors

OPER SUBJECT MATTER EJOURNALS

MICHAEL C. JENSEN
SSRN, Harvard Business School, National Bureau of Economic Research (NBER), European Corporate Governance Institute (ECGI), Harvard University - Accounting & Control Unit
Email: mjensen@hbs.edu

Please contact us at the above addresses with your comments, questions or suggestions for OPER-Sub.