A Bayesian decision analysis in determining the optimal policy for pricing, production, and warranty of repairable products

Chih Chiang Fang, Yeu-Shiang Huang

Research output: Contribution to journalArticle

17 Citations (Scopus)

Abstract

A successful industry strategy should be managed to integrate the decisions, such as pricing, production, and customer services, in order to maximize profits. In fact, some research has been carried out to cope with the multiple considerations for the case in which sufficient historical data are available. However, if sufficient historical data cannot be gathered to confidently estimate the deterioration of a new product, then the solution may not be assertively reliable. In dealing with such a problem for the situation of scarce historical data, a Bayesian analysis should be suitable because it can effectively assess the deterioration based on experts' opinions and possibly few relevant data. In this paper, we employed a mathematical programming approach along with a Bayesian updating process to tackle such a complex decision problem, and the optimal prior and posterior decisions of pricing scheme, production plan, and warranty policy can thus be determined simultaneously. In addition, we provided a computerized architecture to help decision makers in implementing the proposed approach. Finally, a practical application case was used to demonstrate the usefulness of the proposed model.

Original languageEnglish
Pages (from-to)1858-1872
Number of pages15
JournalExpert Systems With Applications
Volume35
Issue number4
DOIs
Publication statusPublished - 2008 Nov 1

Fingerprint

Decision theory
Deterioration
Mathematical programming
Costs
Profitability
Industry

All Science Journal Classification (ASJC) codes

  • Artificial Intelligence
  • Computer Science Applications

Cite this

@article{85c22d72093b4302b07fa3b028d20bd6,
title = "A Bayesian decision analysis in determining the optimal policy for pricing, production, and warranty of repairable products",
abstract = "A successful industry strategy should be managed to integrate the decisions, such as pricing, production, and customer services, in order to maximize profits. In fact, some research has been carried out to cope with the multiple considerations for the case in which sufficient historical data are available. However, if sufficient historical data cannot be gathered to confidently estimate the deterioration of a new product, then the solution may not be assertively reliable. In dealing with such a problem for the situation of scarce historical data, a Bayesian analysis should be suitable because it can effectively assess the deterioration based on experts' opinions and possibly few relevant data. In this paper, we employed a mathematical programming approach along with a Bayesian updating process to tackle such a complex decision problem, and the optimal prior and posterior decisions of pricing scheme, production plan, and warranty policy can thus be determined simultaneously. In addition, we provided a computerized architecture to help decision makers in implementing the proposed approach. Finally, a practical application case was used to demonstrate the usefulness of the proposed model.",
author = "Fang, {Chih Chiang} and Yeu-Shiang Huang",
year = "2008",
month = "11",
day = "1",
doi = "10.1016/j.eswa.2007.08.075",
language = "English",
volume = "35",
pages = "1858--1872",
journal = "Expert Systems with Applications",
issn = "0957-4174",
publisher = "Elsevier Limited",
number = "4",

}

A Bayesian decision analysis in determining the optimal policy for pricing, production, and warranty of repairable products. / Fang, Chih Chiang; Huang, Yeu-Shiang.

In: Expert Systems With Applications, Vol. 35, No. 4, 01.11.2008, p. 1858-1872.

Research output: Contribution to journalArticle

TY - JOUR

T1 - A Bayesian decision analysis in determining the optimal policy for pricing, production, and warranty of repairable products

AU - Fang, Chih Chiang

AU - Huang, Yeu-Shiang

PY - 2008/11/1

Y1 - 2008/11/1

N2 - A successful industry strategy should be managed to integrate the decisions, such as pricing, production, and customer services, in order to maximize profits. In fact, some research has been carried out to cope with the multiple considerations for the case in which sufficient historical data are available. However, if sufficient historical data cannot be gathered to confidently estimate the deterioration of a new product, then the solution may not be assertively reliable. In dealing with such a problem for the situation of scarce historical data, a Bayesian analysis should be suitable because it can effectively assess the deterioration based on experts' opinions and possibly few relevant data. In this paper, we employed a mathematical programming approach along with a Bayesian updating process to tackle such a complex decision problem, and the optimal prior and posterior decisions of pricing scheme, production plan, and warranty policy can thus be determined simultaneously. In addition, we provided a computerized architecture to help decision makers in implementing the proposed approach. Finally, a practical application case was used to demonstrate the usefulness of the proposed model.

AB - A successful industry strategy should be managed to integrate the decisions, such as pricing, production, and customer services, in order to maximize profits. In fact, some research has been carried out to cope with the multiple considerations for the case in which sufficient historical data are available. However, if sufficient historical data cannot be gathered to confidently estimate the deterioration of a new product, then the solution may not be assertively reliable. In dealing with such a problem for the situation of scarce historical data, a Bayesian analysis should be suitable because it can effectively assess the deterioration based on experts' opinions and possibly few relevant data. In this paper, we employed a mathematical programming approach along with a Bayesian updating process to tackle such a complex decision problem, and the optimal prior and posterior decisions of pricing scheme, production plan, and warranty policy can thus be determined simultaneously. In addition, we provided a computerized architecture to help decision makers in implementing the proposed approach. Finally, a practical application case was used to demonstrate the usefulness of the proposed model.

UR - http://www.scopus.com/inward/record.url?scp=48749106195&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=48749106195&partnerID=8YFLogxK

U2 - 10.1016/j.eswa.2007.08.075

DO - 10.1016/j.eswa.2007.08.075

M3 - Article

VL - 35

SP - 1858

EP - 1872

JO - Expert Systems with Applications

JF - Expert Systems with Applications

SN - 0957-4174

IS - 4

ER -