Chair of Logistics and Quantitative Methods

Research success: three new publications in leading international journals


Researchers at the Chair of Logistics and Quantitative Methods were able to place three new research contributions in leading international journals.

Felix Lauton, Richard Pibernik and Alexander Rothkopf (who was a Postdoc at the Chair of Logistics and Quantitative Methods at Würzburg University and has recently taken up a position as researcher at the Humanitarian Response Lab of the Center of Transportation and Logistics at the Massachusetts Institute of Technology – MIT) published their research on donor-funded procurement of essential medicines in the European Journal of Operational Research (EJOR) (see publication).

The research presented in this paper emerged out of a collaboration between the William Davidson Institute at the University of Michigan and the Chair of Logistics and Quantitative Methods at the University of Würzburg. Motivated by challenges of the United Nations Population Fund  (UNFPA) and USAID, the international development agency of the United States, in procuring donor-funded contraceptives for developing countries, Felix Lauton, Alexander Rothkopf and Richard Pibernik developed a model and framework that allows buyers like UNFPA and USAID to determine how to optimally split their procurement volumes among branded pharmaceutical companies (like Pfizer) and generics manufacturers that have recently entered the market place. The research presented in this paper provides a novel approach for evaluating the trade-off between competition (among pharma companies) and supply risks that come along with the entry of new generics manufacturers. The authors demonstrate the value of their approach based on real life data for UNFPA and USAID. The European Journal of Operational Research is rated “A” by the German Academic Association for Business Research (Verband der Hochschullehrer für Betriebswirtschaft – VHB). The abstract of the paper is provided below.

The paper entitled “Allocation Planning in Sales Hierarchies with Stochastic Demand and Service-Level Targets” by Konstantin Kloos, Benedikt Schule and Richard Pibernik was recently accepted for publication by OR Spectrum, which is also rated as “A” by the German Academic Association for Business Research (Verband der Hochschullehrer für Betriebswirtschaft – VHB). The research presented in this paper was funded by the German Research Foundation (Deutsche Forschungsgemeinschaft – DFG) under grant number 263894463 and it is an outcome of a joint project with researchers from the University of Mannheim and the University of Hohenheim (details). Konstantin Kloos, Richard Pibernik and Benedikt Schulte (who was a doctoral and postdoctoral student at the Chair of Logistics and Quantitative Methods and who is now in a leading management position at one of Germany’s largest retailers) tackled a very relevant and challenging problem: How to allocate supplies of products in a decentral sales organization when demand is uncertain and the company wants to meet certain service-level commitments. The paper presents very rigorous analytical solutions to this practically relevant problem, proposes heuristics that perform well in diverse settings, and provides conclusive insights into how supplies should be allocated in a typical sales organization.  The abstract of the paper is included below.

Finally, the paper entitled “Purchasing Managers' Willingness to Pay for Attributes that Constitute Sustainability” authored by Philipp Goebel, Carsten Reuter, Richard Pibernik, Christina Sichtmann and Lydia Bals was accepted for publication by the Journal of Operations Management, which is also rated “A” by the German Academic Association for Business Research (Verband der Hochschullehrer für Betriebswirtschaft – VHB). The paper is of an empirical nature and explores an extremely relevant question: How much are professional procurement managers willing to pay (in addition to the regular price) if their suppliers can demonstrate that they adhere to certain sustainability standards. The paper reports the very interesting results of an extensive empirical study in which many professionals participated in a conjoint study with the objective to extract their willingness to pay for sustainability. As it sometimes happens in cross-disciplinary studies with multiple authors, the paper took long to be finalized and accepted by a top journal of the discipline. Anyways, the results are striking and will most likely receive quite some attention in the research community. Christina Sichtmann, one of the co-authors, is a professor at the University of Vienna and frequently holds lectures and Ph.D. Seminars at the University of Würzburg.



The value of entrant manufacturers: A study of competition and risk for donor-funded procurement of essential medicines

Global-health purchasing organizations (POs) want to increase access to essential medicines in low-income countries. One way to purchase more medicines with limited funds is to contract with generics manufacturers, thereby increasing competition and lowering prices. However, many POs fear that these entrants are less reliable than others and increase supply risks: failure to adhere to lead times and supplier defaults may cause disruptions that result in unsuccessful medical treatments. The problem can be remedied or at least reduced if POs have a sound basis for assessing manufacturers. To this end, we develop a mathematical framework that supports decision-makers in an integrated evaluation of an entrant’s effect on purchasing costs and supply risks. Our approach accounts for the characteristics of donor-funded global-health markets and the particular tasks and specific challenges of POs in these markets. More specifically, our approach enables a PO to quantify a potential entrant’s value depending on important characteristics of the incumbent and the entrant manufacturer. We use data from a project for donor-funded procurement of Depot Medroxyprogesterone Acetate (DMPA) of two large POs. Our results show the feasibility of our approach for POs, manufacturers, and philanthropic investors in the global-health domain, and we explore the trade-off between competition and supply risks and provide insights into how the entrant’s value is affected by parameters like production costs, capacity, lead time and default risk, and in-country registration.

Allocation Planning in Sales Hierarchies with Stochastic Demand and Service-Level Targets

Matching supply with demand remains a challenging task for many companies, especially when purchasing and production must be planned with sufficient lead time, demand is uncertain, overall supply may not suffice to fulfill all of the projected demand, and customers differ in their level of importance. The particular structure of sales organizations often adds another layer of complexity: These organizations often have multi-level hierarchical structures that include multiple geographic sales regions, distribution channels, customer groups, and individual customers (e.g., key accounts). In this paper we address the problem of ``allocation planning'' in such sales hierarchies when customer demand is stochastic, supply is scarce, and the company's objective is to meet individual customer groups' service-level targets. Our first objective is to determine when conventional allocation rules lead to optimal (or at least acceptable) results and to characterize their optimality gap relative to the theoretical optimum. We find that these popular rules lead to optimal results only under very restrictive conditions and that the loss in optimality is often substantial. This result leads us to pursue our second objective: to find alternative (decentral) allocation approaches that generate acceptable performance under conditions in which the conventional allocation rules lead to poor results. We develop two alternative (decentral) allocation approaches and derive conditions under which they lead to optimal allocations. Based on numerical analyses, we show that these alternative approaches outperform the conventional allocation rules, independent of the conditions under which they are used. Our results suggest that they lead to near-optimal solutions under most conditions.

Purchasing Managers' Willingness to Pay for Attributes that Constitute Sustainability

Considering the increasing international division of labor, as well as stakeholders’ growing awareness of sustainability, assuring that business practices are sustainable is a major challenge. Companies have to account for the fact that any misconduct at a supplier’s premises may have spillover effects that reach the manufacturer or retailer. Therefore, purchasing managers have to assure that their suppliers are compliant with sustainability standards. This, however, may induce higher purchasing costs and, as a consequence, force a trade-off between (short term) economic (i.e., purchasing cost reduction) and social/environmental sustainability criteria. How purchasing managers evaluate this trade-off is particularly interesting because they often receive performance-based salaries that incentivize the reduction of purchasing costs. Our paper sheds light on this trade-off by examining how much purchasing managers are willing to pay to assure compliance along different sustainability dimensions when selecting new suppliers in a mature market setting, namely Germany. Additionally, we identify potential (individual, professional, and organization-related) factors that may impact the purchasing managers’ willingness to pay (WTP), and examine their effects. Among the most surprising findings, purchasing managers on average are willing to pay a price premium for manuals that demonstrate compliance with the United Nationals Global Compact (UNGC). Furthermore, the results show that this WTP is mostly influenced (negatively) by self-enhancement (on the individual level) and/or obedience to authority (on the organizational level), but the effects of company, affiliation with the UNGC, gender, or years of experience have no influence. Moreover, the WTP is higher for the social than for the environmental dimension, and the marginal effect of accreditation on WTP depends on which combinations of dimensions are accredited.