Knowledge that Transforms

We model strategic behavior of two types of suppliers in B2B spot markets: a supplier that has forward contracts and uses the spot market only for inventory liquidation, and a supplier that uses the spot market as its sole selling channel. We find that when the spot market demand is small, the supplier that has forward contracts has a higher incentive to invest in expanding the spot market. When the spot market demand exceeds a threshold size, this situation is reversed, and the supplier with no contracts benefits more from making the spot market more prevalent. We show that a supplier with forward contracts benefits from the existence of the spot market more than a supplier with no contracts and that this result holds with both negative and positive correlation between spot market demand and contracted demand. We find that suppliers producing only for the spot market gain from working in industries where contracted demand and spot market demand are positively correlated, whereas suppliers that have forward contracts benefit from working in industries with a negative correlation between demands, since it allows them to better manage risk. In addition, both total industry supply and spot market supply are higher in industries where demands are negatively correlated.

In a job shop, because of large setup times, each operation is assigned to only one machine. There is no alternative routing. In a flexible manufacturing system, each manufacturing operation can often be performed on several machines. Therefore, with automated equipment, the capacity of a machine to perform certain operations is not independent of the capacity of other machines. Often, however, operations managers can use a route‐independent answer to production planning questions. For example, how much can be produced of a certain part type and when are important capacity questions in business negotiations, when the detailed routing and scheduling are not yet of interest or cannot be known. This paper provides a mathematical model for the route‐independent analysis of the capacity of flexible manufacturing systems based on a concept of operation types. An example is provided both to illustrate the use of operation types and to highlight the differences between the traditional route‐dependent and the proposed route‐independent formulations of capacity constraints. Some computational results are also given. Finally, a sensitivity analysis is developed to analyze the feasibility of production plans when production requirements and machine capacities can change.

Due to the proliferation of electronic commerce and the development of Internet technologies, many firms have considered new pricing‐inventory models. In this paper, we study the role of stockless (i.e., zero‐inventory) operations in online retailing by a considering duopoly competition in which two retailers compete to maximize profit by jointly optimizing their pricing and inventory decisions. In our model, the retailers are allowed to choose either an in‐stock policy or stockless operations with a discounted price. We first present the characteristics and properties of the equilibrium. We then demonstrate that the traditional outcome of asymmetric Bertrand competition is observed under head‐to‐head competition. However, when the two firms choose different operational policies, with corresponding optimal pricing, they can share the market under certain conditions. Finally, we report interesting observations on the interaction between pricing and inventory decisions obtained from an extensive computational study.

A significant portion of the services industry is focused on providing services (medical, legal, financial, personal, and travel) to individuals. However, studies have shown that a less visible but rapidly growing segment of the service sector comprises firms that provide business functions to other businesses. The sector covers tasks such as payroll processing, procurement, and information systems management, as well as business consulting, technical support, call center operations, and software development. Firms may choose to purchase, rather than perform, these business functions to reduce costs, to mitigate risk, or simply to focus on their processes that provide marketplace differentiation. Transferring a business function from within a firm to an outside supplier is often called “outsourcing”; when the supplier provides the service from a lower‐cost country, it is called “offshoring.” The risks and benefits of outsourcing to the firm purchasing a business service have been studied in some detail by both academics and consultants. In this paper, we outline revenue management issues faced by business service providers and describe some new opportunities for the use of analytic methods in the service science sector.

Research in revenue management is rapidly changing as the environment in which firms operate changes. The Internet, the adoption of new information technologies, and other market forces are driving a new wave of research in revenue management. At the same time, more and more industries are adapting the tools of revenue management to their needs. Promising research directions are more sophisticated models of consumer behavior, more general models and understanding of rivalry, and more general pricing mechanisms. These are important issues for today's revenue managers and promising areas for both theoretical and empirical research.

Deposits held at Federal Reserve Banks are an essential input to the business activity of most depository institutions in the United States. Managing these deposits is an important and complex inventory problem for two reasons. First, Federal Reserve regulations require that depository institutions hold certain amounts of such deposits at the Federal Reserve Banks to satisfy statutory reserve requirements against customers' transaction accounts (demand deposits and other checkable deposits). Second, some inventory of such deposits is essential for banks to operate one of their core lines of business: furnishing payment services to households and firms. Because the Federal Reserve does not pay interest on such deposits used to satisfy statutory reserve requirements, banks seek to minimize their inventory of such deposits. In 1994, the banking industry introduced a new inventory management tool for such deposits, the retail deposit sweep program, which avoids the statutory requirement by reclassifying transaction deposits as savings deposits. This is an interesting inventory problem for fungible items, where the conversion process is reversible. We examine two methods for operating such sweeps programs within the limits of Federal Reserve regulations, and we develop a stochastic dynamic programming model to implement one such method, the threshold method.

We consider the scheduling of ground station support times to low Earth orbit (LEO) satellites with overlapping visibilities. LEO satellites typically complete a revolution around the Earth in less than four hours at an altitude of a few hundred miles and are part of the critical infrastructure for natural resource management, crop yield estimation, meteorology, flood control, communication, and space research. Because these satellites are quite expensive to launch and operate, utilizing them in the best possible manner is of paramount importance for the agencies that own them. A ground station provides support time to a satellite to perform a variety of tasks when the satellite is visible to the station over a prespecified planning horizon; the payoff from providing such support is a function of the support time. When two or more satellites pass over the ground station, their visibility time windows may overlap. Thus, under overlapping visibilities, a relevant problem is that of scheduling ground station support time for each satellite with the objective of maximizing the total utility generated from supporting the satellites. We propose four basic scheduling models to address a variety of scenarios and investigate their computational complexities. For each model, we also identify special cases that are polynomially solvable.

This paper considers a supply chain setting where several capacitated suppliers compete for orders from a single retailer in a multiperiod environment. At each period, the retailer places orders to the suppliers in response to the prices they announce. Each supplier has a fixed capacity. We consider a make‐to‐stock setting where the retailer can carry inventory. The retailer faces exogenous, price‐dependent demand. We study the problem using ideas from fluid models. In particular, we (i) analyze when there are pure equilibrium policies in this setting and characterize the structure of these policies; (ii) consider coordination mechanisms; and (iii) present some preliminary computational results. We also consider a modified model that uses option contracts to coordinate the supply chain.

Motivated by the challenges small‐ to medium‐size companies face in export‐oriented industries, we consider a competitive market for a set of substitutable products. Depending on the assortment of the firms and the substitution behavior of the customer, either a product is sold to the customer or the sale is lost. We consider the cooperation of independent producers that offer a combined set of products to their customers. Producers use discounted price contracts to manage the exchange of products among themselves. We propose an analytical model that enables us to determine the characteristics of firms and their products that would facilitate a beneficial cooperation. We conclude that a cooperation between symmetric single‐product firms is always beneficial, whereas threshold‐type criteria should be satisfied so that assortment‐based cooperation is beneficial for asymmetric firms. We also show that commonality in product assortments of cooperating firms has adverse effects on the benefit from cooperation. For the most general problem setting, we propose a method to determine the set of firms that should cooperate and set the parameters of the contract among the members of cooperation in such a way that each member of the cooperation is better off. We use a numerical study to draw insights on the conditions for which our cooperation scheme is beneficial in the most general problem setting.

I am concerned that the field of production and operations management is losing direction and cohesion, as well as the battle for the best new faculty, student enrollments, and research funding. This problem is not due to a lack of interesting initiatives but because our several active subfields are pulling us in different directions and causing our common ground to shrink. This is at a time when firms around the globe are facing perplexing operating problems that are apparently not resolvable through existing theories and techniques. Other academic fields have experienced similar strains at certain points, and they tend to get to that point following a progression like those that production and operations management has witnessed three times in the past 50 years. After briefly describing these past histories, I propose that we are near the end of one cycle and need a new jolt of energy to begin another. The problems of coordinating the complex collaborations among networked organizations (the Coordination of Operations across Multiple Organizations) are becoming increasingly important in today's economy. I suggest that intensive multiteam studies of such networks could provide new insights into these pressing problems, stimulate creativity, and help reunify our field.