Modeling Internet-enabled opportunities in supply-chain operation

In this dissertation, we develop analytical models to quantify opportunities in supply-chain operation that arose due to the progression of Internet technologies. We recognize that companies have started to use virtual stores as a direct channel in addition to their indirect retail channels and we analyze this development using mathematical models for a dedicated and an integrated supply chain. In the dedicated supply chain, retail stores serve all in-store customers and the virtual store serves all online customers. In the integrated supply chain, retail stores still serve all in-store customers, but excess stock at retail stores can be used to fill some online orders. We show that significant cost savings can be achieved by an integrated supply chain over a dedicated supply chain and that both retailers and customers benefit from an integrated supply chain. We analyze how the optimal solutions depend on the characteristics of the supply chain, and we identify conditions under which it is optimal to operate the virtual store without dedicating any inventory to the virtual store. We also consider the situation of manufacturers that do not own or control a retail channel but have started to use virtual stores as a direct distribution channel. These models incorporate decentralized decision-making and are used to analyze how the supply chains can be coordinated, how the optimal supply-contract parameters can be computed, and how the supply-chain profits can be allocated between a manufacturer and its retail-channel partners.; We then analyze the benefits of using online spot markets in addition to their traditional procurement via forward contracts. Based on mathematical models, we determine the optimal order quantities to purchase via forward contracts and via spot markets based on some key parameters, such as demand and spot price volatilities, correlation between demand and spot prices, and risk aversion. The results of our analyses show that significant profit improvements can be achieved if a moderate fraction of the commodity demand is procured via spot markets and that companies who use spot markets can offer a higher expected service level.