Knowledge that Transforms

In this JOM Forum article, published in conjunction with the Special Issue on Manufacturing in the High‐Cost Environment, two operations management heavyweights Richard Schonberger and Karen Brown examine the missing link between manufacturing research and practice.

It has been clearly established that a cost premium for responsiveness may be justified for profitable time‐sensitive products, and that this cost premium may suffice to render production in a high‐cost environment competitive. Time‐insensitive products considered in isolation seldom justify a cost premium, leading many decision makers to conclude that their production does not belong in a high‐cost environment. This leads to a manufacturing‐location decision in which profitable and time‐sensitive products are produced in a high‐cost environment and time‐insensitive products are transferred to a low‐cost environment. Responsiveness, however, requires a capacity buffer that provides the option to meet a demand peak for a profitable, time‐sensitive product. Leftover capacity can then be ideally deployed to manufacture time‐insensitive products to stock. We propose that the cost of the capacity buffer be considered as an option cost and assigned to the time‐sensitive product: “option‐based costing”. We then demonstrate use of demand volatility to create a portfolio of products that are time sensitive and insensitive to generate profit and increase competitiveness. Option‐based costing combined with a volatility portfolio reveals opportunities to produce competitively in high‐cost environments that have typically been considered unfeasible.

In a September 2015 editorial (Guide and Ketokivi, 2015), the co‐editors‐in‐chief of the Journal of Operations Management restructured the management of submissions into departments by substantive domain. This essay expands upon their brief description of the Strategy and Organization Department. While chiefly seeking to clarify what we see as the department's content domain, we also offer insights on how to maximize the contribution of operations management research to the strategy and organization literature.

In this paper, we apply a design science approach to help a Northern European city improve the efficiency of its home care delivery system. Our proposed solution emerges as a synthesis of applying Goldratt's Theory of Constraints and the principles of variable‐demand inventory replenishment. The improved system exhibits both more level resource utilization and higher productivity due to more efficient capacity utilization. In addition to improving system efficiency, we gain insights into how authentic operations management problems can be addressed through design research. A crucial aspect of empirically‐rooted practical problems is that they always involve multiple stakeholders with only partially overlapping preferences. Consequently, one must not assume or ascribe an a priori system objective, instead, it must arise from explicit empirical analysis of the relevant stakeholders. Another characteristic of authentic problems is that they are always embedded in an institutional context that sets significant boundary conditions to the feasibility of solutions. These boundary conditions are an important reminder of the complexity of empirically‐rooted managerial problems.

Manufacturing management, in its evolving theory, research, and practice, is plagued by mindsets that are narrowly focused on factory efficiency, with insufficient emphasis on customer responsiveness and its dominant role in competitiveness. In our presentation of these issues we describe and advocate customer‐oriented manufacturing practices, in the realm of factory infrastructure. This approach, which we call concurrent production or CP, involves configuring, equipping, and operating factories with a primary focus on synchronization with customer demand. We call on OM researchers to consider these topics in furthering the cause of market competitiveness.

Interest in reshoring, defined as the return of manufacturing and service operations from previously offshored locations to the U.S., has gained momentum recently. Yet, there is no academic evidence on the shareholder value implications of reshoring decisions. This paper analyzes the shareholder wealth effects of 37 reshoring decisions announced by U.S. firms during 2006–2015. Our results indicate that reshoring announcements result in positive abnormal stock returns. Mean (median) abnormal stock returns on reshoring announcements are 0.45% (0.29%), corresponding with a mean (median) market value change of $322.57 million ($31.60 million). Our findings imply that the benefits associated with the reshoring tend to outweigh the costs. This finding is relevant for firms faced with the decision of whether to move business activities from offshore to domestic locations. It is also of interest to policy makers who may seek to further stimulate the reshoring phenomenon.

Policy interventions by governments to alter the structure of economic activity have either been dismissed or ignored by operations management (OM) scholars. However, in recent years, such ‘industrial policy’ measures have gained increasing support in developed economies, particularly in relation to manufacturing. This paper argues that contemporary manufacturing in high‐cost economies is rooted in technological innovation. As such, it can be enhanced by industrial policy interventions that prevent systems failures in the process of turning technological innovation into commercially viable products. In particular, we argue that this can be achieved by establishing non‐firm, intermediate research organizations and by other measures to change the institutional architecture of an economy. We disagree with claims in earlier OM literature that industrial policy is all but irrelevant to manufacturing firms and to OM. Instead, we argue that OM must broaden its conceptual scope so as to encompass active engagement with non‐firm network participants such as government‐supported intermediate research organizations, and that, as well as learning to be effective users of industrial policy, OM practitioners and academics should engage actively in the development of industrial policy. In this way, high‐value, high‐productivity manufacturing can be viable in high‐cost economic environments.