RESPONSIVSUPPLYCHAIN · Product Design, Quick Response and Competition in Retail Supply Chains""

Product Design, Quick Response and Competition in Retail Supply Chains

Project Objective: Understanding the impact of supply chain capabilities such as responsiveness, short procurement, production, and design lead times on competitiveness of retailers and manufacturers. Relevance: European and Turkish firms can gain sustainable competitive advantages relative to their world-wide competitors by taking advantage of their location being close to markets in Europe, Middle East and Africa. This can only be achieved by developing flexible, responsive and agile supply chains enabling firms to customize and deliver products to customers quickly. Methodology: Game Theory and Stochastic Inventory Models This final report describes the project activities from 01.04.2012 to 31.03.2014. This timeline includes project packages P1, P2 and P3, which were completed by 31.03.2014 as planned. P1 is the development of a model that studies how a firm should choose its initial position in a product line and possibly revise its product position after observing demand signals. The objective is to investigate how a firm should react in a competitive environment where other firms may or may not have similar capabilities. This will be achieved by characterizing the equilibrium inventory levels and properties of the product assortment offered to customers for all firms in the industry. P2 studies responsive supply chain strategies in the presence of customers with strategic customers. The primary goal is to study the monopoly case only and include strategic customers, who may choose to wait for a product that will better match their preferences. The researcher will investigate whether the existence of strategic customers will make the firm more or less likely to introduce new products and lead to larger or smaller design changes. I have collaborated with Victor Martinez-de-Albeniz to work on this packet. We have developed mathematical and game-theoretic models to study these problems. We have submitted our work to international conferences and got accepted. We are working on the manuscript to get the paper to journal submission stage. Main Results: Proposition 1: We find that fast fashion retailers are able to offer the more popular products and enjoy higher margins over retailers with slower supply chains. • Proposition 2: When the competition is between two fast fashion retailers, the retailers may overpopulate the popular categories with products resulting in a more intense price competition and lower profits for both firms. The result is not due to an early mover advantage. A slow firm cannot provide a high variety level in all categories, thus it less aggressively competes in the winning categories. Meta-Game Results: • When there is pricing flexibility, i.e., competition is not only on the variety dimension, and similar products by competing firms are in more direct competition with each other than other products in the category (i.e., gamma<1), then two fast firms may destroy profits due to aggressive price competition. The slow-slow competition on the other hand reduces the probability of overlaps as their variety level in a given category is bound to be low. Thus, being slow serves as a collusion device. This holds even without any cost disadvantage by the fast firms. P3 consists of studying of Turkish companies to understand the challenges they face in building responsive supply chains and operational strategies they employ to remain competitive. This work packet has grown beyond expectations and the original plan. As I have served as the Academic Director of Koç University MIGROS Retail Research Center, I have had close collaboration with many retailers. As a result of these interactions, two research projects that are direct application of these results to companies have been successfully completed. These applications are described later in the report in more detail. They have not only transformed the partner companies’ supply chain decision making processes, but also will serve as successful case studies of how Turkish (and European) manufacturing base can be utilized to create competitive advantages. This work has been presented in two large industry conferences and drawn significant attention from Turkish Retailers. Other objectives of the project included activities for knowledge transfer and industry impact that were realized with the following activities. As part of the research center activities, I have organized industry conferences in 2012, 2013, and 2014, that brought together 200 people each year, including 120 retail executives from Turkey, 40 academics from all around Turkey, about 40 graduate students from universities in İstanbul. The speakers each year were renowned academics from major research institutions in the U.S. and Europe showcasing applied retail research in Marketing and Operations. I have advised a Masters student who worked on an optimization problem with real retail data. She will be defending her thesis in July 2013. I have taught a graduate seminar course. I have started advising a doctoral student who is working on a retail operations project. I have given talks at various European and Turkish Universities. I have decided to leave Duke University and move to Koç University by the end of the fellowship.

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