Knowledge that Transforms

To help a firm reduce inefficiencies associated with equipment capacity planning, we propose a dual-mode equipment procurement (DMEP) framework. DMEP combines dual-source (i.e., a less-expensive-but-slower base mode and a faster-but-more-expensive flexible mode) procurement with option contracts in three layers: a contract negotiation layer, where the firm chooses the best combination of lead time and price for each mode from the supply contract menu; a capacity reservation layer, where the firm reserves total equipment procurement quantities from the two supply modes before the planning horizon starts; and an execution layer, where the firm orders equipment from the two supply modes based on the updated demand information. We first investigate the execution layer as a dynamic dual-source capacity expansion problem with demand backlogging and demonstrate that the optimal policy lacks structure even under the simplest setting. Thus, we propose a heuristic solution for the execution-layer problem, which also serves as a building block for the other two layers. Through numerical analysis, we quantify the value of the added flexibility of DMEP for the firm. The DMEP framework has been implemented at Intel Corporation and has resulted in savings of tens of millions of dollars for one process technology.

Measures to extend the economic lives of products—such as remanufacturing carried out by closed-loop supply chains—are receiving increased attention because of various economic and regulatory factors. In this paper, we examine drivers of price differentials between new and remanufactured products using data on purchases made on eBay. Our analysis shows that seller reputation significantly explains the price differentials between new and remanufactured products. We also find that products remanufactured by original equipment manufacturers or their authorized factories are purchased at relatively higher prices than products remanufactured by third parties. However, in the presence of these reputation signals (seller reputation and remanufacturer identity), we find that stronger warranties are not significantly associated with higher prices paid for remanufactured products. Our work contributes to the closed-loop supply chain research stream in operations management by empirically examining market factors that have not been studied before.