Showing papers in "Production and Operations Management in 2015"

Remanufactured products in closed-loop supply chains for consumer goods

Abstract: This study empirically investigates consumer perceptions of remanufactured consumer products in closed-loop supply chains. A multi-study approach led to increasing levels of measure refinement and facilitated examination of various assumptions researchers have made about the consumer market for remanufactured products. Based in part on the measure building studies, an experimental study examined remanufactured product perceptions from a national panel of consumers. The consumers responded to remanufactured product descriptions that manipulated price discount and brand equity. The results indicate that discounting had a consistently positive, linear effect on remanufactured product attractiveness. Curiously, the brand equity manipulation proved less important to consumers than specific remanufactured product quality perceptions. The results also show that green consumers and consumers who consider remanufactured products green typically found remanufactured products significantly more attractive. Finally, the findings introduce the concept of negative attribute perceptions, such as disgust, that had a significantly detrimental effect on remanufactured product attractiveness.

An Integrated Text Analytic Framework for Product Defect Discovery

Abstract: The recent surge in the usage of social media has created an enormous amount of user-generated content (UGC). While there are streams of research that seek to mine UGC, these research studies seldom tackle analysis of this textual content from a quality management perspective. In this study, we synthesize existing research studies on text mining and propose an integrated text analytic framework for product defect discovery. The framework effectively leverages rich social media content and quantifies the text using various automatically extracted signal cues. These extracted signal cues can then be used as modeling inputs for product defect discovery. We showcase the usefulness of the framework by performing product defect discovery using UGC in both the automotive and the consumer electronics domains. We use principal component analysis and logistic regression to produce a multivariate explanatory analysis relating defects to quantitative measures derived from text. For our samples, we find that a selection of distinctive terms, product features, and semantic factors are strong indicators of defects, whereas stylistic, social, and sentiment features are not. For high sales volume products, we demonstrate that significant corporate value is derivable from a reduction in defect discovery time and consequently defective product units in circulation.

Recent Developments in Dynamic Pricing Research: Multiple Products, Competition, and Limited Demand Information

Abstract: Dynamic pricing enables a firm to increase revenue by better matching supply with demand, responding to shifting demand patterns, and achieving customer segmentation. In the last 20 years, numerous success stories of dynamic pricing applications have motivated a rapidly growing research interest in a variety of dynamic pricing problems in the academic literature. A large class of problems that arise in various revenue management applications involve selling a given amount of inventory over a finite time horizon without inventory replenishment. In this study, we identify most recent trends in dynamic pricing research involving such problems. We review existing research on three new classes of problems that have attracted a rapidly growing interest in the last several years, namely, problems with multiple products, problems with competition, and problems with limited demand information. We also identify a number of possible directions for future research.

Supplier Encroachment as an Enhancement or a Hindrance to Nonlinear Pricing

Abstract: The objective of this study was to extend existing understanding of supplier encroachment to contexts in which there is information asymmetry and the supplier can use nonlinear pricing. Prior research has shown that supplier encroachment can mitigate double marginalization and thus benefit both the supplier and the reseller. However, under symmetric information, this benefit disappears if the supplier can use nonlinear pricing. In our model, the reseller observes the true market size while the supplier knows only the prior distribution, that is, a seemingly ideal setting for implementing mechanism design through nonlinear pricing. We first show that, because encroachment capability enables the supplier to make an ex post output decision, it fundamentally alters the structure of the optimal nonlinear pricing policy. In addition to the usual downward distortion effect, where the reseller may purchase less than the efficient quantity, we also have the possibility for upward distortion. Thus, under asymmetric information and nonlinear pricing, supplier encroachment has two opposing effects. On one hand, the ability to shift sales to the direct channel allows the supplier to reduce information rents with less sacrifice of efficiency; but on the other hand, by introducing the possibility of her own opportunistic behavior, it can result in upward distortion of the quantities sold through the reselling channel, which is a new source of inefficiency. Depending upon the relative efficiency of the reselling channel and the demand distribution, either of these two effects may dominate and the supplier's ability to encroach may either benefit or hurt both the supplier and the reseller.

The Impact of Contracts and Competition on Upstream Innovation in a Supply Chain

Abstract: We consider a supply chain with an upstream supplier who invests in innovation and a downstream manufacturer who sells to consumers. We study the impact of supply chain contracts with endogenous upstream innovation, focusing on three different contract scenarios: (i) a wholesale price contract, (ii) a quality-dependent wholesale price contract, and (iii) a revenue-sharing contract. We confirm that the revenue-sharing contract can coordinate supply chain decisions including the innovation investment, whereas the other two contracts may result in underinvestment in innovation. However, the downstream manufacturer does not always prefer the revenue-sharing contract; the manufacturer's profit can be higher with a quality-dependent wholesale price contract than with a revenue-sharing contract, specifically when the upstream supplier's innovation cost is low. We then extend our model to incorporate upstream competition between suppliers. By inviting upstream competition, with the wholesale price contract, the manufacturer can increase his profit substantially. Furthermore, under upstream competition, the revenue-sharing contract coordinates the supply chain, and results in an optimal contract form for the manufacturer when suppliers are symmetric. We also analyze the case of complementary components suppliers, and show that most of our results are robust.

Competition and Coordination in a Two-Channel Supply Chain

Abstract: We study competition and coordination in a supply chain in which a single supplier both operates a direct channel and sells its product through multiple differentiated retailers. We study analytically the supply chain with symmetric retailers and find that the supplier prefers to have as many retailers as possible in the market, even if the retailers' equilibrium retail price is lower than that of the supplier, and even if the number of retailers and their cost or market advantage prevent sales through the direct channel. We find that the two-channel supply chain may be subject to inefficiencies not present in the single-channel supply chain. We show that several contracts known to coordinate a single-channel supply chain do not coordinate the two-channel supply chain; thus we propose a linear quantity discount contract and demonstrate its ability to perfectly coordinate the two-channel supply chain with symmetric retailers. We provide some analytical results for the supply chain with asymmetric retailers and propose an efficient solution approach for finding the equilibrium. We find numerically that the supplier still benefits from having more retailers in the market and that linear quantity discount contracts can mitigate supply chain inefficiency, though they no longer achieve perfect coordination.

Conceptualizing Social Responsibility in Operations via Stakeholder Resource-Based View

Abstract: We seek to conceptualize social responsibility for operations management (OM) research to develop a social responsibility lens through which to view operations. To do so, we first consider the corporate social responsibility, sustainability, as well as the bottom-ofthe-pyramid and shared value approaches and identify three challenges to developing such a lens: selecting the level of analysis, tackling the huge multitude of objectives, and developing theoretical underpinnings. We then propose a ‘stakeholder resource-based view’ (SRBV) building on resource-based view, stakeholder theory, and utility theory to address these challenges. Under SRBV, all stakeholders are treated on a par with each other. These different stakeholders are all presumed to seek maximizing their respective (expected) utility, with different drivers shaping their preferences and do so they use their respective resources, routines and dynamic capabilities. SRBV provides (a) a descriptive framework for qualitative research, (b) an instrumental framework for empirical research, and (c) a normative framework for analytical research. It enables tackling many opportunities for OM research to do with social responsibility and we outline some of these in each of the three types of research methodologies.

Carrots or Sticks? Improving Social and Environmental Compliance at Suppliers Through Incentives and Penalties

Abstract: Firms are increasingly looking to eradicate social and environmental non-compliances at their suppliers in response to increasing regulations, consumer demand, potential for supply chain disruptions, and to improve their social, environmental, and economic supply chain performance. This study develops a model of the relationship between the buyer's supplier incentives and penalties for the supplier's social and environmental compliance, and the outcomes in terms of reduction in supplier social and environmental violations as well as the buyer's own operating costs. This model is tested empirically through analysis of a dataset of opinion-based survey responses from practitioners at 334 companies across 17 industries. The analysis finds specific penalties and incentives that are positively associated with reduced supplier violations and reduced buyer operating costs. In particular, offering suppliers incentives of increased business and training for improving social and environmental performance is strongly associated with a reduction in both violations and operating costs

Does a Store Brand Always Hurt the Manufacturer of a Competing National Brand

Abstract: It is generally believed that store brands hurt the manufacturers of competing national brands while benefiting retailers. In this study, we challenge this notion by studying the impacts of a store brand when it is introduced by a power retailer. We show that a store brand may benefit the manufacturer when the interaction between the manufacturer and retailer is modeled as a retailer-led Stackelberg game. This phenomenon occurs because the store brand changes the nature of the strategic interaction between the manufacturer and retailer in our model. In particular, while the interaction is always vertical strategic substitutability without a store brand, it may become vertical strategic independence with one. With the store brand, the demand for the national brand becomes larger, and the wholesale price for the national brand may increase, both of which benefit the manufacturer. Finally, the store brand may lessen the double marginalization problem of the supply chain for the national brand in the retailer-led Stackelberg game, but does so in an unconventional way: The reduction in the double marginalization effect may come from a lowered retail markup instead of a lowered wholesale price. Our results reconcile some discrepancies between theoretical predictions and empirical findings regarding the impacts of store brands on manufacturers.

Managing Supply Disruptions when Sourcing from Reliable and Unreliable Suppliers

Abstract: We study a manufacturer's optimal multiple-sourcing strategies when some but not all suppliers face risks of complete supply disruptions. Using an approximate model, we show that the optimal unreliable orders are ranked by a simple and intuitive criterion, and are invariant of minor market size changes. Furthermore, when ordering from one reliable and one unreliable supplier, we show that the total order quantity and its allocation between the two suppliers are independent decisions. We then test and confirm the robustness of the insights without the approximation, as well as when we relax various assumptions.

Sourcing with Deferred Payment and Inspection under Supplier Product Adulteration Risk

Abstract: We study the deferred payment and inspection mechanisms for mitigating supplier product adulteration, with endogenous procurement decision and general defect discovery process. We first derive the optimal deferred payment contract, which reveals that either entire or partial deferral can arise, depending on the moral hazard severity and the information accumulation rate. Because of the supplier's incentive to adulterate, the optimal procurement quantity under deferred payment generally is smaller than the first-best quantity. We then investigate the inspection mechanism and characterize the equilibrium. We find that under the inspection mechanism, the optimal procurement quantity is no less than the first best. A comparison between these two mechanisms shows that the deferred payment mechanism generally can outperform the inspection mechanism when either the market size is small or the profit margin is low. However, we find that these two mechanisms can also be complementary, for which we characterize a necessary condition

All You Need Is Trust? An Examination of Inter-organizational Supply Chain Projects

Abstract: This study examines the antecedents of supply chain project success. We first propose and test a model that describes the role of relationship-level factors (trust and asymmetric dependence) and project-level factors (between-firm communication and within-firm commitment) in determining supply chain project success. We find that project-level factors completely mediate the effect of trust on project success. We conclude that trust, despite being a stronger predictor compared to asymmetric dependence, is necessary but not sufficient for supply chain project success. We then proceed to further explore the role of these factors by introducing a categorical scheme that differentiates supply chain projects based on the decision rights configuration of each project. This categorization enables us to explore how relationship-level and project-level factors can have different impact on performance based on the characteristics of a supply chain project. The findings offer insights into how to effectively manage supply chain projects and inter-firm alliances.

Estimating the Impact of Understaffing on Sales and Profitability in Retail Stores

Abstract: In this study, we use hourly data on store traffic, sales, and labor from 41 stores of a large retail chain to identify the extent of understaffing in retail stores and quantify its impact on sales and profitability. Using an empirical model motivated from queueing theory, we calculate the benchmark staffing level for each store, and establish the presence of systematic understaffing during peak hours. We find that all 41 stores in our sample are systematically understaffed during a 3-hour peak period. Eliminating understaffing in these stores can result in a significant increase in sales and profitability in these stores. Also, we examine the extent to which forecasting errors and scheduling constraints drive understaffing in retail stores and quantify their relative impacts on store profits for the retailer in our study.

Addressing the Challenge of Modeling for Decision-Making in Socially Responsible Operations

Abstract: Companies seek sustainability by combining the quest for profitability with the pursuit of social responsibility Since socially responsible operations are characterized by the presence of multiple stakeholders with conflicting goals, applying classical optimization models would seem premature; we first need to capture the behavior of the entire system before attempting to optimize sub-systems to ensure that we focus on the ones driving the behavior of interest Alternative methodologies are required if we are to gain insight into the most important drivers of socially responsible operations in order to apply traditional operations research (OR)/management science (MS) models correctly This study presents an umbrella approach which combines different methodologies to tackle the complexity, unfamiliar context, and counter-intuitive behavior of socially responsible operations at the overall system level

Supply Chain Consequences of Subsidies for Corporate Social Responsibility

Abstract: The use of government incentives tied to market prices as means of boosting corporate social responsibility (CSR) has expanded notably in recent decades. Enhanced business tax deductions for charitable donations and credits for conservation easements are notable cases. While providing incentives for socially desirable behavior to achieve legislative goals has intuitive appeal, the broader economic consequences are not always fully understood. In this study, we examine such wider consequences for supply chains when subsidies for CSR are offered. One effect we identify is that since incentives are typically tied to market value, firms have not only an added incentive to achieve societal objectives (say by donating inventory) but also an incentive to raise output (retail) market prices. A second consequence is that since firms forgo potential revenues by engaging in socially desired behavior, they become increasingly sensitive to supplier pricing; in an uncoordinated supply chain this leads to input (wholesale) price concessions. Among other things, the results underscore that incentives put in place to meet broader societal objectives also have notable ramifications for suppliers, retailers, and consumers in primary markets

Managing Perishables with Time and Temperature History

Abstract: We address the use and value of time and temperature information to manage perishables in the context of a retailer that sells a random lifetime product subject to stochastic demand and lost sales. The product's lifetime is largely determined by the temperature history and the flow time through the supply chain. We compare the case in which information on flow time and temperature history is available and used for inventory management to a base case in which such information is not available. We formulate the two cases as Markov Decision Processes and evaluate the value of information through an extensive simulation using representative, real world supply chain parameters.

Decision Making and Cognition in Multi-Echelon Supply Chains: An Experimental Study

Abstract: Supply chain performance often depends on the individual decisions of channel members. Even when individuals have access to relevant information, order variation tends to increase when moving up the supply chain, a phenomenon known as the bullwhip effect. While prior research has investigated several structural/environmental factors which can mitigate the bullwhip effect, the underlying behavioral factors contributing to it are an open question. Using a production and distribution decision-making simulation representing a four-stage serial supply chain, we find that the cognitive profile of decision makers contributes to the bullwhip effect. We found that the specific decision tendency to underweight the supply line is linked to an individual's level of cognitive reflection. Furthermore, performance differs for entire supply chains and for specific echelons, and holds under standard mitigation efforts. The findings have implications for supply chain design, education, and industry

Supply Chain Design and Carbon Penalty: Monopoly vs. Monopolistic Competition

Abstract: This paper studies whether imposing carbon costs changes the supply chain structure and social welfare. We explore the problem from a central policymaker's perspective who wants to maximize social welfare. We consider two stakeholders, retailers and consumers, who optimize their own objectives (i.e., profits and net utility) and three competitive settings (i.e., monopoly, monopolistic competition with symmetric market share, and monopolistic competition with asymmetric market share). For the monopoly case, we find that when the retailer's profit is high, imposing some carbon emission charges on the retailer and the consumers does not substantially change the supply chain structure or the social welfare. However, when the retailer's profit is low, imposing carbon costs optimally can lead to a significant increase in social welfare. Moreover, the impact of imposing carbon emission charges becomes more significant when the degree of competition increases. Additionally, the quantum of benefit may depend only on factors common across industries, such as fuel and carbon costs.

The Economic Value of Market Information for Farmers in Developing Economies

Abstract: In developing countries, farmers lack information for making informed production, manufacturing/selling decisions to improve their earnings. To alleviate poverty, various non-governmental organizations (NGOs) and for-profit companies have developed different ways to distribute information about market price, crop advisory and farming technique to farmers. We investigate a fundamental question: will information create economic value for farmers? We construct a stylized model in which farmers face an uncertain market price (demand) and must make production decisions before the market price is realized. Each farmer has an imprecise private signal and an imprecise public signal to estimate the actual market price. By examining the equilibrium outcomes associated with a Cournot competition game, we show that private signals do create value by improving farmers' welfare. However, this value deteriorates as the public signal becomes available (or more precise). In contrast, in the presence of private signals, the public signal does not always create value for the farmers. Nevertheless, both private and public signals will reduce price variation. We also consider two separate extensions that involve non-identical private signal precisions and farmers' risk-aversion, and we find that the same results continue to hold. More importantly, we find that the public signal can reduce welfare inequality when farmers have non-identical private signal precisions. Also, risk-aversion can dampen the value created by private or public information

Carbon emissions in a multi-echelon production-inventory model with lead time constraints

Abstract: We develop a deterministic optimization model that incorporates carbon emissions in a multi-echelon production-inventory model with lead time constraints. We impose that each customer order must be delivered within the due date fixed by the customer. The quantity that cannot be delivered on time is a lost sale. We consider a multi-echelon supply chain with different external suppliers, different manufacturing facilities, and different distribution centers. We adopt a general inventory policy. Indeed, we do not impose any constraints on the stock level that must be kept for each product in each facility in each period and on the procurement order quantities in the different facilities. Carbon emissions are associated with the decisions of manufacturing of intermediate and final products, ordering (transportation) from external and internal suppliers, and inventory positioning of the different products in the different stages of the supply chain. We first deal with the case of carbon emissions tax and then turn to the case of carbon emissions cap. We use the model to provide a series of insights that would be of interest for firms and policy makers. Such insights would be difficult to obtain with classical production-inventory models. For instance, the integration of lead times permits to show how the amount of carbon emissions is non-monotone with the variation of customer lead time and orders frequency. Also, the consideration of a general inventory policy permits to show how some particular policies (such as the base stock and the fixed order quantity) leads to increasing emissions. In addition, we capitalize on the multi-echelon aspect of our model in order to study the effect of individual emissions caps on each facility with comparison to a global cap on the entire supply chain. For instance, we demonstrate that individual caps can achieve significant lower emissions but can paradoxically lead to increasing the per unit emissions. We also show how a share of emissions can improve per unit emissions without deteriorating total emissions.

The Implications of Utilizing Market Information and Adopting Agricultural Advice for Farmers in Developing Economies

Abstract: To alleviate poverty in developing countries, governments and non-governmental organizations disseminate two types of information: (i) agricultural advice to enable farmers to improve their operations (cost reduction, quality improvement, and process yield increase); and (ii) market information about future price/demand to enable farmers to make better production planning decisions. This information is usually disseminated free of charge. While farmers can use the market information to improve their production plans without incurring any (significant) cost, adopting agricultural advice to improve operations requires upfront investment, for example, equipment, fertilizers, pesticides, and higher quality seeds. In this study, we examine whether farmers should use market information to improve their production plans (or adopt agricultural advice to improve their operations) when they engage in Cournot competition under both uncertain market demand and uncertain process yield. Our analysis indicates that both farmers will use the market information to improve their profits in equilibrium. Hence, relative to the base case in which market information is not available, the provision of market information can improve the farmers' total welfare (i.e., total profit for both farmers). Moreover, when the underlying process yield is highly uncertain or when the products are highly heterogeneous, the provision of market information is welfare-maximizing in the sense that the maximum total welfare of farmers is attained when both farmers utilize market information in equilibrium. Furthermore, in equilibrium, whether a farmer adopts the agricultural advice depends on the size of the requisite upfront investment. More importantly, we show that agricultural advice is not always welfare improving unless the upfront investment is sufficiently low. This result implies that to improve farmers' welfare, governments should consider offering farmer subsidies

Capacity Sharing and Cost Allocation among Independent Firms with Congestion

Abstract: We analyze the benefit of production/service capacity sharing for a set of independent firms. Firms have the choice of either operating their own production/service facilities or investing in a facility that is shared. Facilities are modeled as queueing systems with finite service rates. Firms decide on capacity levels (the service rate) to minimize delay costs and capacity investment costs possibly subject to service-level constraints on delay. If firms decide to operate a shared facility they must also decide on a scheme for sharing the capacity cost. We formulate the problem as a cooperative game and identify settings under which capacity sharing is beneficial and there is a cost allocation that is in the core under either the first-come, first-served policy or an optimal priority policy. We show that capacity sharing may not be beneficial in settings where firms have heterogeneous work contents and service variabilities. In such cases, we specify conditions under which capacity sharing may still be beneficial for a subset of the firms

Investing in a Shared Supplier in a Competitive Market: Stochastic Capacity Case

Abstract: When firms invest in a shared supplier, one key concern is whether the invested capacity will be used for a competitor. In practice, this concern is addressed by restricting the use of the capacity. We consider what happens when two competing firms invest in a shared supplier. We consider two scenarios that differ in how capacity is used: exclusive capacity and first-priority capacity. We model firms' investment and production decisions, and analyze the equilibrium outcomes in terms of the number of investing firms and capacity levels for each scenario; realized capacity is a stochastic function of investment levels. We also identify conditions under which the spillover effect occurs, where one firm taps into the other firm's invested capacity. Although the spillover supposedly intensifies competition, it actually discourages firms' investment. We also characterize the firms' and supplier's preference about the capacity type. While the non-investing firm always prefers spillovers from the first-priority capacity, the investing firm does not always want to shut off the other firm's access to its leftover capacity, especially when allowing spillover induces the other firm not to invest. The supplier's preference depends on the trade-off between over-investment and flexibility

Opportunism in Distribution Networks: The Role of Network Embeddedness and Dependence

Abstract: Prior research documents the value of network relationships to firm behavior but is relatively silent on how networks influence opportunism in distribution channels. Focusing on a common type of distribution networks in which multiple distributors serve a single, dominant supplier, this study moves beyond a dyadic view to examine how a focal distributor's relational and structural embeddedness in such a distribution network influences its opportunism toward the dominant supplier. In particular, we postulate that a distributor's relational embeddedness in the network curbs its opportunism, whereas its network centrality, as a form of structural embeddedness in the network, promotes its opportunism. Moreover, we propose that relational embeddedness magnifies the role of a focal distributor's dependence on the supplier in suppressing the distributor's opportunism, whereas network centrality buffers such a role. We first empirically test these hypotheses using data collected from car dealers in China; the results provide support for the hypotheses. We then develop an analytical model to validate and further explain the underlying mechanisms of the network effects. Our analytical results not only validate the empirical results but also provide guidance for managers on controlling opportunism in distribution networks

A Comparison of Product Take-Back Compliance Schemes

Abstract: Product take-back regulation, under which firms finance the collection and treatment of their end-of-life products, is a widely used environmental program. One of the most common compliance schemes is collectively with cost allocation by market share. As an alternative, individual compliance scheme is considered. Assuming that firms can choose their compliance scheme, we compare these two schemes with respect to the costs they impose on firms and environmental benefits. We show that high collection targets and large market shares among firms in a collective compliance scheme make it more cost-effective. From an environmental benefits perspective, the prevailing intuition is that collection rates will be higher under collective schemes but individual compliance will provide more incentive for higher recyclability levels. Our results challenge both of these premises. We identify conditions under which collection rates are higher when firms comply individually and recyclability levels are higher when firms comply collectively and allocate costs with respect to market shares.

Optimal Software Free Trial Strategy: Limited Version, Time-locked, or Hybrid?

Abstract: Limited version, time-locked, and hybrid are three software free trial strategies employed by software firms to exploit increased installed base and/or reduction of consumers' uncertainty about software quality. We develop an analytical model to examine these three software free trial strategies. We find that the hybrid strategy weakly dominates the limited and time-locked versions, and the intensity of the network effects is a key factor determining which strategy is optimal.

Aggregating Smallholder Farmers in Emerging Economies

Abstract: The agricultural sector plays an important role in emerging economies even though most farmers are trapped in the poverty cycle owing to their smallholdings. Aggregating farmers through formal or informal cooperatives (coops) can enable them to: (i) reduce production cost; (ii) increase/stabilize process yield; (iii) increase brand awareness; (iv) eliminate unnecessary intermediaries; and (v) eliminate price uncertainty. To examine whether these effects will benefit the members of such aggregation when they compete with other individual farmers, we present separate models to capture the essence of these five effects. For each effect, we find that it is beneficial for a farmer to be part of the aggregation only when the size of the aggregation is below a certain threshold. Also, while certain effects are beneficial to the market as a whole, other effects are hurtful due to higher market price and/or lower production quantity.

Bounding Optimal Expected Revenues for Assortment Optimization under Mixtures of Multinomial Logits

Abstract: We consider assortment problems under a mixture of multinomial logit models. There is a fixed revenue associated with each product. There are multiple customer types. Customers of different types choose according to different multinomial logit models whose parameters depend on the type of the customer. The goal is to find a set of products to offer so as to maximize the expected revenue obtained over all customer types. This assortment problem under the multinomial logit model with multiple customer types is NP-complete. Although there are heuristics to find good assortments, it is difficult to verify the optimality gap of the heuristics. In this study, motivated by the difficulty of finding optimal solutions and verifying the optimality gap of heuristics, we develop an approach to construct an upper bound on the optimal expected revenue. Our approach can quickly provide upper bounds and these upper bounds can be quite tight. In our computational experiments, over a large set of randomly generated problem instances, the upper bounds provided by our approach deviate from the optimal expected revenues by 0.15% on average and by less than one percent in the worst case. By using our upper bounds, we are able to verify the optimality gaps of a greedy heuristic accurately, even when optimal solutions are not available

The Influence of ISO 9000 Certification on Process Compliance

Abstract: This article examines the influence of ISO 9000 certification on plant-level process compliance, which arguably is its first-order, targeted performance dimension. The empirical setting is the medical device manufacturing industry. Process compliance is measured through Food and Drug Administration inspections of manufacturing plants. We control for several observable factors that possibly affect process compliance by matching certified plants with non-certified plants. Using longitudinal data, we find plants that obtained certification in the earlier diffusion period (early-certified plants) tend to have significantly better process compliance than a matched, non-certified control group of plants. The compliance difference between early-certified plants and their matched control group is greater than the compliance difference between late-certified plants and their matched control group. We also find deterioration in process compliance over time after certification. Because we capture longitudinally the first-order effects of ISO 9000 on process compliance, this study provides a useful baseline for assessing causality in ISO 9000-performance linkages. Also, we explain, in part, the inconsistencies observed in related ISO 9000 literature examining the performance effects of certification. Further, this research offers managerial insights on the dynamics of certification and process compliance with time, and highlights the need for continued vigilance post certification.