Product design, pricing and inventory planning in dual channel supply chains

Many companies today are operating with a dual channel structure—a conventional channel with physical stores and an Internet channel. My thesis focuses on three operational decisions—product design, pricing and inventory planning in dual channel supply chains.; We first investigate the Internet channel's ability to enable mass customization—satisfying heterogeneous customers' individual needs at a relatively low cost. Since providing the many customized product options completely based on build-to-order is too expensive, some generic versions of the product can first be mass-produced and the remaining part of the product can be customized to order. While the generic products are built-to-stock in large volume and sold through the conventional channel, the custom products are customized to individual order and sold through the Internet channel. We compare the mass customization system with the mass production system, when both systems are optimized in the number of base product variants, their specifications and prices.; We then study the dynamics of the two channels under one firm. The key research questions are: (i) the specification of the generic product that can immediately be sold to the conventional channel customers and also be used as the base to create custom product for the Internet channel customers, (ii) the optimal pricing decisions for both channels, and (iii) the right channel structure for companies with different capabilities and facing different market demands.; The Internet channel can also be used to promote early marketing campaigns and to book advance customer orders well before the launch of the physical products. When facing short product life cycles, companies can use this valuable demand information from the Internet channel to better forecast their future demand for both channels. We thus model correlated demands across time and across channel. Optimal inventory replenishment decisions can be made using dynamic programming. Since products can be customized and packaged differently for the two channels, the value of delayed product differentiation is also studied under the correlated demand model.