Knowledge that Transforms

AbstractOperations management scholars have long debated the right level of slack resources required to optimize a production system. Recent research suggests that the right level of operational slack, typically in the form of inventory, is very little but not none. However, this conclusion was reached without considering the role of slack resources in occupational safety, which is a critical oversight since the safety literature predicts that the reduction of operational slack harms workers. To address this gap, secondary data from 3945 publically listed U.S. firms is used to explore the role of operational and financial slack as well as market factors in occupational safety. The results show that decreasing operational slack harms workers and that this effect is mitigated when firms hold higher levels of financial slack. Furthermore, the external market environment also plays a crucial role in the operational slack – safety relationship.

AbstractSupply chain and reputational risks are often assumed to motivate firms to source production in developed, high‐cost countries rather than developing, low‐cost countries. To examine this assumption, we provide evidence from the collapse of the Rana Plaza building on April 24, 2013, which with its 1133 fatalities and 2438 injuries is seen as one of the worst industrial accidents in history. Do markets reactive negatively enough to such events to motivate firms to shift their sourcing strategy? We analyze the stock market reaction to the Rana Plaza disaster in the Bangladeshi ready‐made garment industry to address this question. Our analysis is based on a sample of 39 publicly traded global apparel retailers with significant garment sourcing in Bangladesh. Stock market reaction to retailers on the day of the Rana Plaza disaster is negative, but its magnitude and significance dissipate by the following day. We find no evidence of significant stock market reaction during the 11 trading days (approximately two weeks in calendar time) following the disaster. Retailers responded to the disaster by developing two different agreements to improve factory and worker safety in Bangladesh – the Accord on Fire and Building Safety in Bangladesh (AFBSB), and the Alliance for Bangladesh Worker Safety (ABWS). We find no evidence of significant stock market reaction to the announcements of the AFBSB and the ABWS. The insignificant negative economic impact from the Rana Plaza disaster suggests that retailers have little economic incentive to move sourcing out of Bangladesh or other low‐cost countries so as to reduce the risk of being involved in such events. We discuss the implications of our results for retailers, non‐governmental organizations (NGOs), garment factory owners in Bangladesh, the Bangladeshi government, and academic researchers.

AbstractSupply chains have become increasingly complex in the last decade, which makes their structural characteristics important determinants of firm performance. Prior studies on supply chain structure have largely emphasized network‐level attributes but ignored supply‐base level characteristics. However, in many cases it is the 1st tier suppliers, not those “deep in the network,” that have most immediate influence on the buyer. In addition, some structural characteristics, such as direct links between the buyer's suppliers and its customers, are not‐so‐visible to the buyer, yet can impact its financial performance dramatically. The existing literature has overlooked these not‐so‐visible structural links. Using objective supply chain data collected from Mergent Online and Compustat, we map the supply base structure of 867 public firms. We construct three visible (horizontal, vertical and spatial) and two not‐so‐visible (eliminative and cooperative) structural complexity metrics, and examine their impacts on buyer firms' financial performance as measured by Return on Assets and Tobin's Q. Our empirical analysis shows that the five dimensions have differential effects: some have negligible impacts while others appear to strongly affect financial performance. Contrary to the common belief that complexity hurts performance, we find that an individual complexity dimension may have both positive and negative effects, and the overall effect may be non‐linear.

AbstractIn this paper, we examine the problem of endogeneity in the context of operations management research. Whereas the extant literature has focused primarily on the statistical aspect of the problem, a comprehensive treatment requires an examination of theoretical and pragmatic considerations as complements. The prevailing problem with the focus on statistical techniques is that the standards tend to be derived from idealizations: the correlation between a regressor and a disturbance term must be exactly zero, or the analysis will be invalid. In actual empirical research settings, such a knife‐edge assumption can never be satisfied, indeed it cannot even be directly tested. Idealizations are useful in helping us understand what it would take to eliminate endogeneity, but when applied directly and unconditionally, they lead to unreasonable standards that may unnecessarily stifle substantive inquiry. We believe that it is far more productive and meaningful to ask: “What can we realistically expect empirical scientists to be able to achieve?” To this end, we cover and revisit some of the general technical material on endogeneity, paying special attention to the idiosyncrasies of operations management research and what could constitute reasonable criteria for addressing endogeneity in empirical operations management studies.

AbstractWe develop actionable design propositions for collaborative sales and operations planning (S&OP) based on the observation of contexts in which benefits are generated — or are absent — from retail information sharing. An information sharing pilot project in a real‐life setting of two product manufacturers and one retailer was designed. The project resulted in one manufacturer, serving a retailer from its local factory, developing a process for collaborative S&OP, while the other manufacturer serving a retailer from more distant regional factories abandoned the process. The evaluation of the outcomes experienced by the two manufacturers allows us to examine contexts in fine‐grained detail and explain why introducing information sharing in the S&OP processes produce — or fail to produce — benefits. The paper contributes to the supply chain information sharing literature by presenting a field tested and evolved S&OP design for non‐standard demand situations, and by a contextual analysis of the mechanisms that produce the benefits of retailer collaboration and information sharing in the S&OP process.

AbstractConsumer return rates have been steadily rising in recent years, resulting in growing costs for retailers who must manage the returns process and the disposition of returned products. This cost pressure is driven in part by extremely generous return policies, such as giving consumers a full refund upon return. Interestingly, this common retail practice of full refunds is inconsistent with the recommendations of many analytical models of returns, which nearly always show that a partial refund is optimal. Such inconsistencies between theory and practice might arise when the decision drivers included in the analytical models do not match the decision drivers in practice. It might also be the case that retailers are overly optimistic about the value that consumers assign to a full refund, and thus assume that the value of such a policy outweighs its costs. In this paper, we use data collected from eBay, where identical products are sold with different return policies, to investigate these open questions in the literature. We analyze both the return policy drivers from the retailer's perspective and the return policy value from the consumer's perspective. Our results suggest that the value of a full refund policy to consumers may not be as large as one might expect, and it also exhibits a large heterogeneity across buyers with different levels of online purchase experience. In addition, we provide empirical evidence for what has long been suspected by online retailers – that a non‐refundable forward shipping charge quickly erodes any value that consumers assign to return policies. The generality of our results is limited by the fact that eBay differs from traditional retail contexts in many respects, including the fact that eBay buyers may not be representative of the general buyer population. However, our study of how eBay consumers value free returns provides new insights into an understudied area, and it can serve as a starting point for future studies of the value of return policies in other retail contexts.

AbstractThis paper examines attention checks and manipulation validations to detect inattentive respondents in primary empirical data collection. These prima facie attention checks range from the simple such as reverse scaling first proposed a century ago to more recent and involved methods such as evaluating response patterns and timed responses via online data capture tools. The attention check validations also range from easily implemented mechanisms such as automatic detection through directed queries to highly intensive investigation of responses by the researcher. The latter has the potential to introduce inadvertent researcher bias as the researcher's judgment may impact the interpretation of the data. The empirical findings of the present work reveal that construct and scale validations show consistently significant improvement in the fit statistics—a finding of great use for researchers working predominantly with scales and constructs for their empirical models. However, based on the rudimentary experimental models employed in the analysis, attention checks generally do not show a consistent, systematic improvement in the significance of test statistics for experimental manipulations. This latter result indicates that, by their very nature, attention checks may trigger an inherent trade‐off between loss of sample subjects—lowered power and increased Type II error—and the potential of capitalizing on chance alone—the possibility that the previously significant results were in fact the result of Type I error. The analysis also shows that the attrition rates due to attention checks—upwards of 70% in some observed samples—are far larger than typically assumed. Such loss rates raise the specter that studies not validating attention may inadvertently increase their Type I error rate. The manuscript provides general guidelines for various attention checks, discusses the psychological nuances of the methods, and highlights the delicate balance among incentive alignment, monetary compensation, and the subsequently triggered mood of respondents.