Essays in process improvement and assortment planning

Abstract

This dissertation consists of three essays in process improvement and assortment planning. In the first essay, we study firm's strategies on balancing two conflicting manufacturing process improvement activities: learning and process change. Learning deepens the firm's knowledge of the manufacturing process, while process change makes the process more technologically advanced, but may conflict with the learning objective. We formalize this inter-temporal trade-off between learning and process change in form of a dynamic optimization problem. We characterize the optimal learning and process change policies and analyze the properties of the optimal learning and process change trajectories. We also provide insights on how various factors affect the optimal process improvement strategies. ^ In the second essay, we study three versions of the retail assortment problem: a traditional, no-search, version that does not explicitly consider consumer search and two versions that implement two consumer search models. Our analysis suggests the retailer's decision to add a product to an assortment should not only consider the direct costs and revenues of the product, but also anticipate the indirect benefit an extended assortment has in mitigating consumer search. We demonstrate that an iterative no-search heuristic will lead to an assortment that contains fewer variants than optimal and the profit loss from the assortment can be substantial. We conclude that retailers should be careful when considering a reduction in their assortment if they sell in a market characterized by consumer search. ^ In the third essay, we investigate the implications of consumer search cost on assortment planning in a competitive market. We consider two consumer search models: parallel search and sequential search. For both search models, we discover that decreasing consumer search cost may enable a retailer to gain access to more potential consumers. Our research suggests retailers should respond to increasing competition driven by lower consumer search cost by extending their assortments, which is in sharp contrast to the assortment reduction strategy predicated by existing models. We demonstrate the importance of distinguishing the driving forces of changing market conditions in competitive strategic decision making. ^