# Class 9: Risk Pooling & Network Effects (πββοΈπ)
*Aug 4, 2025 | [Transcript](./π¦¦/9pool(walmart, amazon)15778_intro_ops_otter_ai.md)*
## π― Teaching Arc
**Hook**: "Yedioth problem: 14,000 SKUs, weekly delivery, unpredictable demand"
**Puzzle**: How manage inventory when each store's demand varies wildly?
**Resolution**: Pool data across stores - variance reduces by βn
**Model**: Virtual pooling > physical pooling (information > inventory)
## π£οΈ Quality Participation
**Manuel**: "Looks like portfolio - correlation?"
- Prof: Good connection to finance concepts
- Impact: Opened risk pooling discussion
**Dimitri**: "Track online demand to fill inventory"
- Builds toward omnichannel strategy
**Sandra**: "Two trips problematic - can't transfer inventory"
- Identifies key constraint in decentralized system
**Key Insight**: βοΈSun-Sat cycle, replenishment end of Sat
- "Tradeoff between certainty vs flexibility"
- Prof: "I like where your head is heading"
## π Quick Scores
Track students who:
- Make cross-domain connections (portfolio theory)
- Identify operational constraints
- Propose data-driven solutions
## π 421 Diagrams
### Traditional Distribution
```
π’ Weekly van delivery π£ Small retailers
14,000 SKUs Wide variety need
\ /
Coordinate ββ Compel
/ \
π Minimize returns π΄ One-stop shop
Reduce stockouts Fresh weekly
```
### Pooled Strategy
```
π’ Centralized data π£ Store network
Delayed allocation Demand visibility
\ /
Coordinate ββ Compel
/ \
π βοΈPool risk π΄ Better fill rates
Lower inventory Fewer stockouts
```
## π Exam Essentials
**Concepts**:
- Risk pooling: Ο_pooled = Ο_individual/βn
- βοΈFormula modularizes thoughts
- Delayed differentiation/allocation
**Key Trade-offs**:
- Certainty (early allocation) vs Flexibility (wait for info)
- Physical pooling (warehouse) vs Virtual (data)
- Service level vs Inventory investment
**Strategy**:
1. Aggregate demand data across locations
2. Delay allocation decisions
3. Use βοΈ"eyeballs effect" - more data points = better prediction
**Traps**:
β"Need physical consolidation"
β
"Information can substitute for inventory"
## π Recitation Points
- "Two-phase distribution: print centrally, allocate late"
- "Savings from pooling + freed printing capacity"
- "Energy providers face same challenge - hoarding vs sharing"
- "Broader assortment possible with returns option"
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