• Management Science and Financial Engineering
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• v.11 no.2
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• pp.1-17
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• 2005

In this article we consider a supply chain consisting of a risk-sensitive manufacturer and a riskneutral retailer. The manufacturer maximizes her individual expected profit by designing a supply chain coordinating returns contract (SCRC) that consists of (i) a channel coordinating returns policy that maximizes the supply chain joint expected profit, and (ii) a profit sharing arrangement that gives the retailer an expected profit only slightly higher than that in the no returns case so that it is just enough to induce the retailer to accept the SCRC. Thus, the manufacturer captures as high a percentage as possible of the jointly maximum supply chain profit. However, this contract can sometimes lead to the manufacturer's resulting realized profit being lower than that in the no returns case when demand is lower than expected. In this context, even though profit is sufficiently attractive on average, will the risk-sensitive manufacturer ever consider applying a SCRC? Our research raises this question and focuses on designing a SCRC that can significantly increase the probability of the manufacturer's resulting realized profit being at least higher than that in the no returns case.

• Journal of Korean Institute of Industrial Engineers
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• v.13 no.1
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• pp.31-38
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• 1987

This paper is concerned with the multiple unit auction under the following assumptions: 1) multiple identical objects are to be sold to the highest bidders, but a bidder may obtain at most one, 2) each bidder has a fixed reservation value and draws his reservation value independently in the same distribution, 3) The greater a bidder's reservation value is, the more a bidder will bid for the object, and 4) a bidder will bid when his expected profit is more than zero. The purpose of this paper is to design the optimal auctions, in terms of the reserve price and entry fee, that can be applied in any types of multiple unit auctions under the above assumptions. Further, auctioneer's expected revenue and profit, and all the winners' expected profit are analyzed.

• The Journal of Asian Finance, Economics and Business
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• v.7 no.11
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• pp.13-22
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• 2020

This research explores the appropriate rubber pricing model and the consistent empirical evidence. This model has been derived from the utility function and firm profit-maximization model of commodity goods. The finding shows that the period t - 1 affects expected commodity price and expected profit of commodity production. In fact, a change in the world price of rubber in the past period led to a change in the expected price of rubber in the short run which influenced the expected rubber profit. As a result, the past-period free on board price has an entirety effect on expected farm price of rubber given an exchange rate. In addition, the rubber pricing model indicates that the profit of local farmer on rubber plant depends solely on the world price of rubber in the short run in case of Thailand. In an empirical study, it was found that a change in the price of ribbed smoke sheet 3 in Singapore Commodity Exchange significantly and positively determined the fluctuation of rubber price at the farm gate in Thailand which was consistent with the behavior of the Thai farmers. Both prices are also cointegrated in the long run. That is, the result states that the VECM is an appropriated pricing model for forecasting the farm price in Thailand.

• Journal of Korean Institute of Industrial Engineers
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• v.39 no.4
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• pp.233-238
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• 2013

This article concerns a profit model in a repair limit replacement problem with imperfect repair. If a system fails, we should decide whether we repair the failed system (repair option) or replace it by new one (replacement option with a lead time). We assume that repair times are random variables and can be estimated before repair with estimation error. If the estimated repair time is less than the specified limit (repair time limit), the failed unit is repaired but the unit after repair is different from the new one (imperfect repair). Otherwise, we order a new unit to replace the failed unit. The long run average profit (expected profit rate) is used as an optimization criterion and the optimal repair time limit maximizes the expected profit rate. Some special cases are derived.

• Environmental and Resource Economics Review
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• v.26 no.4
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• pp.499-517
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• 2017

The purpose of this article is to show profit margin hedging can be an optimal strategy in crude oil purchasing. This study theoretically analyzes profit margin hedging strategy is optimal in crude oil purchasing using expected target utility function and conducts simulations to show if the profit margin hedging is profitable. In addition, this study tests existence of mean reversion of crude oil futures prices to confirm the theory that profit margin hedging is more profitable than other strategies, such as always hedging or buying at expiration with spot price, if futures prices are mean reverting. The simulation results show that the expected utility of profit margin hedging higher than other strategies. Although we cannot find any evidence that crude oil futures prices follow mean reverting process, we can conclude that profit margin hedging can be optimal strategy in crude oil purchasing based on theoretical proof and simulation results.

• Journal of the Korean Operations Research and Management Science Society
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• v.37 no.3
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• pp.13-21
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• 2012

In this note, a recent work in Won (2011) which investigates properties of the newsvendor model under progressive multiple discounts is revisited and a complete proof is provided for the conjecture on the consistent advantage of progressive multiple discounts over no-discounts in terms of the expected profit. The proof considers the generalized newsvendor model under progressive multiple discounts extended with positive shortage cost and salvage value which have not been considered in the previous newsvendor models under progressive multiple discounts. Without relying on derivatives, we prove that the expected profit under progressive multiple discounts are consistently greater than or equal to the one under no-discounts for every order quantity as far as her multiple discounts do not decrease customer demand, and therefore, the optimal expected profit under progressive multiple discounts is always greater than or equal to the one under no-discounts. As by-products from the proof, some interesting features of the generalized newsvendor model under progressive multiple discounts are revealed.

• Journal of Korean Society of Industrial and Systems Engineering
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• v.21 no.45
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• pp.201-213
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• 1998

We address the problem of choosing the most economic mean value for an automatic filling operation on a production line through the sampling inspection. If quality characteristic of a unit is less than inspection specification then the goods is not accepted. Otherwise, it is accepted. The lots that the numbers of non-conforming units in a sample are larger than the allowable number of non-conforming units are rejected. The non-conforming units in the rejected lots are separated by the screening inspection. The non-conforming units separated are sold in discount price. We assume that quality characteristic is larger-the-better characteristic, the distribution of quality characteristic is normal distribution, and the standard deviation of the distribution is known. This paper presents total expected profit function model considering sales revenue, inspection costs, and material costs. The manufacturing process mean value maximizing total expected profit is determined, and the results of the process target value and total expected profit is analyzed as coefficients change.

• Management Science and Financial Engineering
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• v.20 no.2
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• pp.27-31
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• 2014

This paper studies the assortment optimization problem in online retailing by using a multinomial logit model in order to take consumer choice behavior into account. We focus on two unique features of online purchase behavior: first, there exists increased amount of uncertainty (e.g., size and color of merchandize) in online shopping as customers cannot experience merchandize directly. This uncertainty is captured by the scale parameter of a Gumbel distribution; second, online shopping entails unique shopping-related disutility (e.g., waiting time for delivery and security concerns) compared to offline shopping. This disutility is controlled by the changes in the observed part of utility function in our model. The impact of changes in uncertainty and disutility on the expected profit does not exhibit obvious structure: the expected profit may increase or decrease depending on the assortment. However, by analyzing the structure of the optimal assortment based on convexity property of the profit function, we show that the cardinality of the optimal assortment decreases and the maximum expected profit increases as uncertainty or disutility decreases. Therefore, our study suggests that it is important for managers of online retailing to reduce uncertainty and disutility involved in online purchase process.

• The Journal of the Korea Contents Association
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• v.21 no.6
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• pp.588-597
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• 2021

In Korea, the standard for calculating the profit of a general insurance, which constitutes the loading in the premium, is not specified, and most of the non-life insurance companies reflect 2~5% of the premium as profit margin. Although the transparency of pricing is required due to the nature of insurance products, there are insufficient standards and empirical studies on the determination of insurance price factors in the domestic insurance industry. In this study, we propose a method of calculating the expected profit margin of general insurance. A way for calculating the expected profit margin of the general insurance is to reflect the shareholder demand on the capital that the insurance company should secure against the risk of loss due to the profit/loss volatility, as a ratio to the insurance premium. Shareholders should be compensated for the risks associated with their insurance operations, and the opportunity cost of these shareholders is to be reflected in premiums. In this study, we calculate the amount of capital that the company should accumulate to prepare insurance risk for each product, and insurance risk is defined as the volatility of insurance operating profit/loss. And insurance risk is calculated using stochastic simulation based on Dynamic Financial Analysis (DFA) methodology. Finally, we calculate the expected profit margins for 25 products and analyzed the difference between those and the profit ratio of domestic general insurance.

• Industrial Engineering and Management Systems
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• v.12 no.2
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• pp.95-102
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• 2013

It is difficult to determine an appropriate discount price for daily perishable products to increase profit from a long-term standpoint. Even if the discount pricing is efficient to increase profit of the day, consumers memorize the sales price and they might hesitate to purchase the product at a regular price the following day. The authors discussed the inventory clearance pricing for a single period in our previous study by constructing a mathematical model to derive an optimal sales price to maximize the expected profit by considering the reference price effect of demand. This paper extends the discussion to handle the discount pricing for multiple periods. A mathematical analysis is first conducted to reveal the properties on an objective function, which is the present value of total expected profits for multiple periods. An algorithm is then proposed to derive an optimal price for asymmetric consumers. Numerical experiments investigate the characteristics of the objective function and optimal pricings.