Knowledge that Transforms

To help small firms secure bank financing, large sellers often orchestrate joint finance programs, linking their small dealers with major banks that lend to all participating dealers based on the information the seller provides. We examine supply chain decisions (pricing and inventory) and lending terms under such seller-orchestrated financing programs. In loan pricing, we highlight a form of financial friction that is of particular importance under such schemes—bank capital regulation. Banks are globally mandated to maintain regulatory capital to mitigate unforeseen loan losses, using either the standardized approach (where regulatory capital is a fixed percentage of the loan amount) or the internal rating-based (IRB) approach (where it depends on the loan’s value-at-risk). We consider a game-theoretic model consisting of a large seller and multiple capital-constrained newsvendor-type dealers, who obtain financing from banks that are subject to capital regulation. The seller decides the wholesale price and whether to orchestrate a joint finance program for its dealers by collaborating with a bank, and the dealers choose their inventory level and the financing channel. We find that a seller should only orchestrate the joint financing program when the bank adopts the IRB approach and the dealers are of low risk. Such a program is more profitable to the seller when the demand correlation among dealers is low, and there is a large number of dealers. Although always benefiting the seller, these programs may hurt dealers with intermediate risk. Facing dealers with varying financial situations, the terms under the joint finance program should be designed as if the financially strong dealers subsidize the weak ones. Finally, allowing the seller to share part of the loan loss could further enhance the performance of joint financing, but only when the seller’s opportunity cost of capital is low. Our findings provide guidance to large sellers on how to orchestrate joint finance schemes, and to small dealers on making their corresponding operational decisions.

Language system diversity is a source of individual differences. Research on human cognition has established that writing direction influences non-linguistic mental schemata such as spatial orientation. However, there is little empirical evidence of its impact on task performance. We examine whether task performance in manual order-picking is higher when the in-aisle travel direction follows the writing direction of order pickers. We conducted this study in cooperation with a German brick-and-mortar grocery retailer, allowing us to employ a unique real-world data set comprising 3,200,534 storage-location visits by 113 order pickers, 61 of whom had a left-to-right and 52 a right-to-left writing direction. Our statistical analyses suggest that order-picking task performance improves when the in-aisle travel direction follows individual writing direction. This creates a path to diversity-inspired operations management that treats efficiency and the diversity and inclusion of human workers as equally important for optimization.

Under a relational contract, the value placed on expected future business must outweigh the short-term temptations to deviate for the buyer–supplier relationship to persist. Operational and relational factors that influence this trade-off have been explored, however, there is a considerable lack of research on the moderating effects of supplier and market characteristics. We offer insights into how supplier service models and market dynamics impact suppliers’ decisions to renege on the relational contract. Limited access to transactional and contractual data has restricted previous exploration. We overcome this limitation with a detailed dataset in the for-hire truckload transportation sector. We find that a third-party brokerage service model is better able to overcome operational demand challenges and maintain service due to lower capacity constraints and pooling effects as compared to asset-based providers. Furthermore, when the overall market is capacity-constrained, long-term relationships become less of a deterrent for suppliers to reject business. In addition, during tightly constrained markets, suppliers respond with higher rejection rates to short-term demand surges but not to historical demand variability.

We show how prospect theory uncovers critical decision-making insights in the design of sequential experiences by formulating a general framework and applying it to three experience design settings. First, we study the problem of releasing a piece of good news versus bad news, where a firm may incrementally reveal the news over a preemptive period. We characterize the optimal release strategy for both types of news and show that when the ultimate news is good (resp., bad) and the audience is sufficiently gain-seeking, it is optimal first to release information of a negative (resp., positive) sentiment. Second, we consider the problem of organizing an event such as a concert with performances of known valuations, where an event organizer needs to arrange the sequence of all performances. We show that for both loss-averse and gain-seeking audiences, interior peaks can be optimal, where pleasant and aversive performances are arranged to alternate throughout the event. Lastly, we investigate the problem of simultaneous versus sequential release of a series, such as songs or TV episodes, where a content provider does not know a priori the audience's exact valuation of each item. We show that if the audience's sensitivity to losses is sufficiently small (resp., large), the optimal strategy is to release all items in the series sequentially (resp., simultaneously). Across all of the settings, we show that the audience's sensitivity to losses relative to a reference point is a critical factor that governs how to design and manage the audience's evolving experience dynamics.

We investigate the presence of health disparities in emergency department (ED) disposition decisions and if crowding levels might have an exacerbating role. Using data from a large, academic ED, we find statistically significant associations between ED disposition decisions and patient sex, race, as well as ethnicity, with male, Caucasian, and non-Hispanic patients being more likely to be admitted to the hospital compared with, respectively, female, African-American, and Hispanic patients. In line with earlier findings in other studies, we find that longer waiting times, suggesting higher levels of ED crowding, is associated with higher rates of admission. Moreover, longer ED wait times modified sex differences, suggesting that the disposition disparity in female patients might be exacerbated when the ED is more crowded.

Scholars in management science and operations management (MS and OM) continue to make significant contributions to the notion of “doing good with good operations.” Impressively, the MS and OM literature has developed several pro-social sub-streams, such as healthcare operations, sustainability, and nonprofit operations; however, to the best of my knowledge, there are only two studies in the top MS and OM journals that mention LGBTQ+-related terms in their abstracts, keywords, or introductions (one appeared in 1989 and the other in 2021). The LGBTQ+ community is an integral part of society, and the field has significant potential to impact the lives of its members economically and socially. MS and OM scholars could pay greater attention to research problems at the interface of operational decision-making and the LGBTQ+ community, which I term “rainbow operations.” This study advances LGBTQ+ diversity, equity, and inclusion within the MS and OM literature by invoking several existing studies and showcasing how similar state-of-the-art techniques and tools can be used to answer interesting, rich, and impactful research questions concerning rainbow operations. I present motivating examples and supporting statistics, discuss related work by MS and OM scholars, and suggest several avenues for future research around the following three themes: LGBTQ+ clients in service delivery settings, LGBTQ+ employees in contemporary workplaces, and LGBTQ+ community in global supply chains. My goal is to inspire MS and OM scholars to think more broadly about our discipline and offer valuable operations-related perspectives on research problems of relevance to the LGBTQ+ community.

In this essay, our analysis takes important insights on diversity and inclusion from the behavioral literature but critically contextualizes them against the reality of humanitarian operations. Humanitarian operations are characterized by system immanent diversity, particularly between local and expatriate aid workers, who not only bring valuable different perspectives to the table but also differ along multiple dimensions of diversity into a so-called diversity faultline. Such a faultline, however, provides fertile ground for continued conflict resulting in relational fractures and, ultimately, inefficient collaboration. While, in theory, inclusion could help overcome the negative effects of faultlines, in practice, the time pressure for humanitarian organizations to quickly respond to disasters makes it effectively impossible to engage in it. Against this background, we argue, humanitarian organizations should take preemptive action before disaster strikes. Specifically, we posit that the pre-disaster phase presents an opportunity to engage in inclusion in order to cultivate relational resilience between local and expatriate aid workers. Such resilience would enable them to not only better weather the inevitable relational fractures during a disaster response (and thus stay more functional throughout), but also quickly realign with each other in the post-disaster phase. We conclude with a set of concrete recommendations for practicing inclusion in the pre-disaster phase.

A brand manager can interpret a rival's product recall as an opportunity to preempt sales and/or signal superior quality by raising their brand's ad spending. Conversely, they may interpret the recall as a threat that may harm their brand's image and/or lead buyers to draw unfavorable comparisons between their brand and the recalling brand. This interpretation nudges the manager to suppress their brand's ad spending. The authors test the interpretations empirically in the context of 62 substitute car models’ responses to the recall of a competing model. They assess the response over 31 weeks and 308 geographical regions, leading to 591,976 model-week-region observations. Regression discontinuity in time analysis reports that, on average, a substitute brand responds by lowering its ad spending by 50%, suggesting that the threat interpretation dominates the opportunity interpretation. A decomposition of spending by type suggests that substitute brands increase their spending on price advertising by 25%, decrease spending on quality advertising by 71%, but make no adjustment to brand advertising. This nuanced analysis suggests that substitutes attempt sales preemption, avoid quality signaling, and are not worried about brand spillover. A follow-up analysis reports that this advertising strategy strengthens the positive spillover effect of a brand's recall on its substitute brands’ sales volume. The key findings hold for another major automobile recall event in the same market. The findings contribute to the literature on the management of quality perceptions while informing about substitute brands’ managers responses to a rival brand's quality failure and whether the response helps or hurts the substitutes’ sales. Furthermore, the findings build an empirical foundation for future analytic investigation on strategic interactions among brands when a quality defect occurs.

This research examines how strategic consumer behavior influences e-tailers’ decisions on inventory storage locations, pricing strategies, and inventory levels. The e-tailer opts for either a single central warehouse, which has lower holding but higher shipping costs due to its distance from consumers, or a mix of central and proximal local warehouses, which reduces shipping costs but incurs higher holding costs. We find that local warehousing prompts consumers to delay purchases in hopes of discounts, compelling e-tailers to lower prices to encourage early buying. Consequently, the firm may not utilize the local warehouse, even when it comes at no cost. Intriguingly, we find that increased local storage expenses or diminished product durability could paradoxically elevate firm profits. Our numerical analysis highlights the benefits of strategically distributing inventory across both central and local warehouses, especially under conditions of reduced demand uncertainty. Moreover, we establish that our key insights persist in the case of multiple local warehouses.

Firms use social media as a great marketing tool and a convenient platform to deliver customer service. However, due to its public and social nature, social media tends to amplify a brand's successes as well as failures. Reluctant to subject their customer service to public scrutiny, firms are increasingly turning to private messaging on their social media channels for customer service conversations, which amounts to a reincarnation of traditional customer service in the social media era. Nonetheless, whether customers are willing to relinquish their newfound power is unclear. In this paper, we analyze a natural experiment where the inconvenience of the private channel with the treated firm is suddenly eliminated, and we find evidence that customers prefer to complain through the public channel. A randomized survey experiment further confirms this insight. Overall, firms’ and customers’ diverging preferences toward public or private channel reveal a hidden tug-of-war between the traditional mode of customer service featuring firm control and the recently emerged mode of customer service featuring shared control. These findings have important implications for firms’ customer service operations.