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The price is right...for now

Professor Murray Lei studies the real-time decisions that e-commerce firms must make. And how to make them better.
The price is right...for now

Twenty and 30 years ago, Walmart upended department-store rivals like Sears and Kmart with something called everyday low pricing. Rather than hold sporadic sales, Walmart kept prices low all the time. Customers never worried about missing a deal.

Today, as retail moves online, another price revolution is underway: dynamic pricing. Here, prices constantly tick up and down depending on inventory, shopper demand, weather, competition and other factors. Amazon, it’s reported, adjusts its price list every 10 minutes on average.

But price is just one change that sellers of products and services online can make. Amazon, for instance, must make many complicated logistics decisions in real time. Sharing companies like Uber must quickly assess how to optimize its driver fleet for cost and efficiency’s sake. How best to make those decisions? This is where Yanzhe (Murray) Lei, assistant professor of management analytics, comes in.

Lei researches complicated business problems and uses analytics to devise solutions. He’s especially interested in the types of decisions that Amazon, Uber and other online companies need to make many times in a day and how to develop policies and algorithms to make them smoothly. “The technology these kinds of companies have means they can make decisions in real time that affect many aspects of their operations,” he says. “Uber is dealing with thousands upon thousands of vehicles and customers at any given time. How do they make real-time decisions optimally across such a
large scale?”

Getting such decisions right matters a lot. Margins at online sellers are razor thin (Amazon’s operating margin was just 1.3 per cent in 2016) and the cost of serving customers is huge. (In 2015, Amazon spent 10 per cent of its net revenue, or US$11.54 billion, on outbound shipping.)

Lei recently studied the link between dynamic pricing and order fulfilment (in this case, choosing from which warehouse to ship an item) in e-commerce. Both decisions affect a company’s supply and demand. Yet they’re handled separately at most organizations. Lei and his fellow researchers wanted to know what would happen if price and fulfilment decisions were made together. Their findings: joint decision-making can lead to higher profits. 

Practical problems

Murray Lei joined the Smith faculty last September from the University of Michigan’s Ross School of Business. He grew up in Shijiazhuang, in North China. Physics was his interest as a teen, but at university he studied engineering. He earned his undergraduate degree in automation (a combination of electrical engineering and computer science) from Tsinghua University in China in 2012.

Soon academia beckoned. Lei headed to Ross to earn his doctorate in technology and operations. “Business schools tend to work on problems that are more practical,” he says of what drew him to business research. He’s currently working with the American online grocery delivery company Instacart to solve complicated logistics questions.

“I love to work with real companies, find their difficulties and discover solutions,” Lei says. “The research that I do can contribute to a key part of a firm’s journey in analytical decision-making.”