3730 Walnut Street
543 Jon M. Huntsman Hall
Philadelphia, PA 19104
Research Interests: operations strategy, pricing, supply chain management, sustainability
Links: CV, Personal Website
Professor Cachon studies supply chain management, operation strategy and pricing with a focus on how technology transforms competitive dynamics and enables novel operational strategies.
He is an INFORMS Fellow, a Fellow and former President of the Manufacturing and Service Operations Management Society, and the former Editor-in-Chief of Management Science as well as Manufacturing & Service Operations Management.
He has authored two textbooks (along with Christian Terwiesch): Operations Management (2e) and Matching Supply with Demand: An Introduction to Operations Management (4e). These books have been used in undergraduate, MBA and executive MBA courses at Wharton as well as at numerous other business schools throughout the world.
His articles have appeared in Management Science, Manufacturing & Service Operations Management, Marketing Science, Operations Research, the Quarterly Journal of Economics, and Harvard Business Review, among otherse
Gérard Cachon, Tolga Dizdarer, Gerry Tsoukalas (Working), Pricing Control and Regulation on Online Service Platforms.
Abstract: Online service platforms enable customers to connect with a large population of independent servers and operate successfully in many sectors, including transportation, lodging, and delivery, among others. We study how prices are chosen and fees are collected on the platform. The platform could assert full control over pricing despite being unaware of the servers’ costs (e.g., ride sharing). Or the platform could allow unfettered price competition among the servers (e.g., lodging). This choice influences both the amount of supply available and the overall attractiveness of the platform to consumers. When the platform collects revenue via a commission or a per-unit fee, neither price delegation strategy dominates the other. However, the platform’s best payment structure is simple and easy to implement - it is merely the combination of a commission and a per-unit fee (which can be negative, as in a subsidy). Furthermore, this combination enables the delegation of price control to the servers, which may assist in the classification of the servers as contractors rather than employees. A similar approach can be used to maximize profits by fully disintermediated platforms (i.e., no central owner), such as those enabled by blockchain technology.
Gérard Cachon and Dawson Kaaua (Working), Serving Democracy: Evidence of Voting Resource Disparity in Florida.
Gérard Cachon and Dawson Kaaua (Working), Democracy on the Line: Polling Place Closures and their Estimated Impact on Wait Times in the 2016 Presidential Election in Georgia.
Gérard Cachon and Christian Terwiesch, Operations Management (McGraw Hill, 2019)
Gérard Cachon, Santiago Gallino, Jiaqi (Joseph) Xu, Free Shipping Is Not Free: A Data-Driven Model to Design Free-Shipping Threshold Policies.
Abstract: Online retailers often offer free shipping threshold policies: customers who purchase more than a threshold amount are not charged an additional fee for shipping. This paper provides a data-driven analytical model to (i) assess the profitability of a retailer’s current shipping threshold policy and (ii) identify the best freeshipping threshold policy for a retailer. The model is estimated from actual transaction and product return data. The model explicitly accounts for changes in customer shopping behavior due to a free shipping threshold, including strategically adding items to a shopping basket to receive free shipping, which we call orderpadding, and the subsequent adjustment in product return decisions. Roughly speaking, according to our model, a retailer that offers a free shipping threshold policy should set the threshold slightly abovethe average shopping basket amount. We calibrate our model to data from an online apparel retailer and determine that its decision to offer a lower free shipping threshold reduced its profitability considerably.This result is robust to a number of assumptions regarding the impact on long-run sales and possible price adjustments. We conclude that free shipping threshold policies are profitable only under a limited set of restrictive conditions.
Gérard Cachon, Santiago Gallino, Marcelo Olivares (2018), Does Adding Inventory Increase Sales? Evidence of a Scarcity Effect in U.S. Automobile Dealerships, Management Science.
Abstract: What is the relationship between inventory and sales? Clearly, inventory could increase sales: expanding inventory creates more choice (options, colors, etc.) and might signal a popular/desirable product. Or, inventory might encourage a consumer to continue her search (e.g., on the theory that she can return if nothing better is found), thereby decreasing sales (a scarcity effect). We seek to identify these effects in U.S. automobile sales. Our primary research challenge is the endogenous relationship between inventory and sales — e.g., dealers influence their inventory in anticipation of demand. Hence, our estimation strategy relies on weather shocks at upstream production facilities to create exogenous variation in downstream dealership inventory. We find that the impact of adding a vehicle of a particular model to a dealer’s lot depends on which cars the dealer already has. If the added vehicle expands the available set of sub-models (e.g., adding a four-door among a set that is exclusively two-door), then sales increase. But if the added vehicle is of the same sub-model as an existing vehicle, then sales actually decrease. Hence, expanding variety across sub-models should be the first priority when adding inventory—adding inventory within a sub-model is actually detrimental. In fact, given how vehicles were allocated to dealerships in practice, we find that adding inventory actually lowered sales. However, our data indicate that there could be a substantial benefit from the implementation of a “maximizes variety, minimize duplication” allocation strategy: sales increase by 4.4 percent without changing the number of vehicles at each dealership, and a 5.2 percent is possible if inventory is allowed to decrease by 2.8 percent (and no more than 10 percent at any one dealer).
Gérard Cachon See my personal website (link above) for research papers (https://www.gerard-cachon.com).
OIDD 101 explores a variety of common quantitative modeling problems that arise frequently in business settings, and discusses how they can be formally modeled and solved with a combination of business insight and computer-based tools. The key topics covered include capacity management, service operations, inventory control, structured decision making, constrained optimization and simulation. This course teaches how to model complex business situations and how to master tools to improve business performance. The goal is to provide a set of foundational skills useful for future coursework atWharton as well as providing an overview of problems and techniques that characterize disciplines that comprise Operations and Information Management.
Operations strategy is about organizing people and resources to gain a competitive advantage in the delivery of products (both goods and services) to customers. This course approaches this challenge primarily from two perspectives: 1) how should a firm design their products so that they can be profitably offered; 2) how can a firm best organize and acquire resources to deliver its portfolio of products to customers. To be able to make intelligent decisions regarding these high-level choices, this course also provides a foundation of analytical methods. These methods give students a conceptual framework for understanding the linkage between how a firm manages its supply and how well that supply matches the firm's resulting demand. Specific course topics include designing service systems, managing inventory and product variety, capacity planning, approaches to sourcing and supplier management, constructing global supply chains, managing sustainability initiatives, and revenue management. This course emphasizes both quantitative tools and qualitative frameworks. Neither is more important than the other.
Concepts, models, and theories relevant to the management of the processes required to provide goods or services to consumers in both the public and private sectors. Includes production, inventory and distribution functions, scheduling of service or manufacturing activities, facility capacity planning and design, location analysis, product design and choice of technology. The methodological basis for the course includes management science, economic theory,organization theory, and management information system theory.
Research by Wharton’s Gerard Cachon explores how the principles of operations management can help explain voter behavior and strengthen democracy. …Read MoreKnowledge at Wharton - 6/26/2020