Showing papers on "Procurement published in 2013"

Carbon Footprint and the Management of Supply Chains: Insights From Simple Models

Abstract: Using relatively simple and widely used models, we illustrate how carbon emission concerns could be integrated into operational decision-making with regard to procurement, production, and inventory management. We show how, by associating carbon emission parameters with various decision variables, traditional models can be modified to support decision-making that accounts for both cost and carbon footprint. We examine how the values of these parameters as well as the parameters of regulatory emission control policies affect cost and emissions. We use the models to study the extent to which carbon reduction requirements can be addressed by operational adjustments, as an alternative (or a supplement) to costly investments in carbon-reducing technologies. We also use the models to investigate the impact of collaboration among firms within the same supply chain on their costs and carbon emissions and study the incentives firms might have in seeking such cooperation. We provide a series of insights that highlight the impact of operational decisions on carbon emissions and the importance of operational models in evaluating the impact of different regulatory policies and in assessing the benefits of investments in more carbon efficient technologies. Note to Practitioners-Firms worldwide, responding to the threat of government legislation or to concerns raised by their own consumers or shareholders, are undertaking initiatives to reduce their carbon footprint. It is the conventional thinking that such initiatives will require either capital investments or a switch to more expensive sources of energy or input material. In this paper, we show that firms could effectively reduce their carbon emissions without significantly increasing their costs by making only operational adjustments and by collaborating with other members of their supply chain. We describe optimization models that can be used by firms to support operational decision making and supply chain collaboration, while taking into account carbon emissions. We analyze the effect of different emission regulations, including strict emission caps, taxes on emissions, cap-and-offset, and cap-and-trade, on supply chain management decisions. In particular, we show that the presence of emission regulation can significantly increase the value of supply chain collaboration.

Politically Connected Boards of Directors and The Allocation of Procurement Contracts

Abstract: This article analyzes whether political connections of the board of directors of publicly traded companies in the USA affect the allocation of government procurement contracts. It focuses on the change in control of both House and Senate following the 1994 election and finds that companies with boards connected to the winning (losing) party experience a significant and large increase (decrease) in procurement contracts after the election. The results remain significant after controlling for industry classifications as well as for several other company characteristics. The findings highlight one of the main avenues through which corporate political connections add value to US companies. Copyright 2013, Oxford University Press.

Truthful incentives in crowdsourcing tasks using regret minimization mechanisms

Abstract: What price should be offered to a worker for a task in an online labor market? How can one enable workers to express the amount they desire to receive for the task completion? Designing optimal pricing policies and determining the right monetary incentives is central to maximizing requester's utility and workers' profits. Yet, current crowdsourcing platforms only offer a limited capability to the requester in designing the pricing policies and often rules of thumb are used to price tasks. This limitation could result in inefficient use of the requester's budget or workers becoming disinterested in the task. In this paper, we address these questions and present mechanisms using the approach of regret minimization in online learning. We exploit a link between procurement auctions and multi-armed bandits to design mechanisms that are budget feasible, achieve near-optimal utility for the requester, are incentive compatible (truthful) for workers and make minimal assumptions about the distribution of workers' true costs. Our main contribution is a novel, no-regret posted price mechanism, BP-UCB, for budgeted procurement in stochastic online settings. We prove strong theoretical guarantees about our mechanism, and extensively evaluate it in simulations as well as on real data from the Mechanical Turk platform. Compared to the state of the art, our approach leads to a 180% increase in utility.

Collaborative Cost Reduction and Component Procurement Under Information Asymmetry

Abstract: During development of an innovative product there is often considerable uncertainty about component production cost, and it is of interest for both the manufacturer and the supplier to engage in a collaborative effort to reduce this uncertainty and lower the expected cost. Despite the obvious benefits this brings, the supplier may be reluctant to collaborate as he fears revealing his proprietary cost information. We investigate how information asymmetry and procurement contracting strategies interact to influence the supply chain parties' incentives to collaborate. We consider a number of procurement contracting strategies, and identify a simple strategy, expected margin commitment EMC, that effectively promotes collaboration. The manufacturer prefers EMC if collaboration leads to a large reduction in unit cost and/or demand variability is low. Otherwise, a screening contract based on price and quantity is preferred. We also find that, paradoxically, ex post efforts to enhance supply chain efficiency may hinder ex ante collaboration that precedes production. This paper was accepted by Yossi Aviv, operations management.

An empirical investigation into supply chain management

Abstract: States that we have witnessed, over the last several years, a profound change in understanding the dynamics of competitive advantage. Managers now acknowledge that a firm’s success is tied, in part, to the strength of its weakest supply chain partner. This paper develops the concept of supply chain management and argues that only through close collaborative linkages through the entire supply chain, can one fully achieve the benefits of cost reduction and revenue enhancing behaviors. Data are presented that look at a range of supply chain management practices and processes. By examining differences in practices and processes between buyers and sellers, along with the supply chain, attempts to understand better the challenges facing managers who espouse supply chain management. Also proposes a change in mind set for the traditional procurement manager and present insights for him/her to adapt to the requirements of the new competition.

Strategic Closed-Loop Facility Location Problem With Carbon Market Trading

Abstract: The burgeoning environmental regulations are forcing companies to green their supply chains by integrating all of their business value-adding operations so as to minimize the impact on the environment. One dimension of greening the supply chain is extending the forward supply chain to collection and recovery of products in a closed-loop configuration. Remanufacturing is the basis of profit-oriented reverse logistics in which recovered products are restored to a marketable condition in order to be resold to the primary or secondary market. In this paper, we introduce a multiechelon multicommodity facility location problem with a trading price of carbon emissions and a cost of procurement. The company might either incur costs if the carbon cap, normally assigned by regulatory agencies, is lower than the total emissions, or gain profit if the carbon cap is higher than the total emissions. A numerical study is presented which studies the impact of different carbon prices on cost and configuration of supply chains.

Forest energy procurement: state of the art in Finland and Sweden.

Abstract: The EU should produce 20% of their energy from renewable sources, including bioenergy, by 2020. Each member state has their own target, for example, Finland should produce 38% and Sweden 49% of their energy from renewable sources by 2020. In this context, the development of forest energy utilization and more effective and economic supply systems plays an important role in both countries. The Nordic countries are the world leaders in the utilization of forest biomass for energy production. This paper provides a short overview of the driving forces behind the current technical solutions of forest energy procurement systems in Finland and Sweden and some perspectives on possible future developments. At the moment, the by-products from forest industries (e.g., sawdust, black liquor) have a high degree of utilization in both countries. Additional raw materials for energy production include logging residues, stump and root wood, small diameter wood, and other wood not in demand by the traditional forest industries. Forest energy supply chains may be characterized based on the location of comminution into roadside comminution, terminal comminution, or comminution at a plant. The productivity of the generally highly sophisticated and costly procurement machinery is, to a large extent, dependent on the operator's skills and thus new technological solutions should be developed to improve their usability and consequently efficiency.

A Game-Theoretical Scheme in the Smart Grid With Demand-Side Management: Towards a Smart Cyber-Physical Power Infrastructure

Abstract: The smart grid is becoming one of the fundamental cyber-physical systems due to the employment of information and communication technology. In the smart grid, demand-side management (DSM) based on real-time pricing is an important mechanism for improving the reliability of the grid. Electricity retailers in the smart grid can procure electricity from various supply sources, and then sell it to the customers. Therefore, it is critical for retailers to make effective procurement and price decisions. In this paper, we propose a novel game-theoretical decision-making scheme for electricity retailers in the smart grid using real-time pricing DSM. We model and analyze the interactions between the retailer and electricity customers as a four-stage Stackelberg game. In the first three stages, the electricity retailer, as the Stackelberg leader, makes decisions on which electricity sources to procure electricity from, how much electricity to procure, and the optimal retail price to offer to the customers, to maximize its profit. In the fourth stage, the customers, who are the followers in the Stackelberg game, adjust their individual electricity demand to maximize their individual utility. Simulation results show that the retailer and customers can achieve a higher profit and higher utility using our proposed decision-making scheme. We also analyze how the system parameters affect the procurement and price decisions in the proposed decision-making scheme.

Identifying public‐private partnership (PPP) risks in managing water supply projects in Ghana

Abstract: Purpose – The public‐private partnership (PPP) procurement approach enables the development and management of public infrastructure and services through leveraging private capital, management expertise, and creative commercial skills. This approach, pursued by the Ghanaian Government in the development and management of water supply services, contains a plethora of risks resulting from the complexity and dynamic interactions between municipal and central governments (pursuing monetary and political goals), public movements, private water operators, and international donors pursuing their own objectives. The paper seeks to increase awareness of the risks that can erode or reduce potential benefits of PPPs in the water supply sector.Design/methodology/approach – A research approach integrating a literature survey and case study is adopted. A rigorous literature review of PPP risks is first undertaken. Based on six case studies carried out in the Ghanaian water supply sector, this paper identifies and catego...

Is Public Procurement a Successful Small Business Support Policy? A Review of the Evidence

Abstract: Public procurement is a vehicle by which governments can provide direct support to small business. The public sector market is significant and attractive to suppliers of all sizes, yet the current UK government is the latest to feel the need to implement a variety of measures in an attempt to improve the chances of success for smaller suppliers. In this context I have undertaken a critical review of the existing evidence relating to this issue. I have found support for the policy to encourage small and medium-sized enterprise suppliers but also that many barriers, some first identified twenty years ago, still remain. Whilst various remedies have been proposed, it appears that public procurers lack clear priorities and objectives. This, together with a lack of regular and comprehensive supply data, is hindering improvement.

Self-Enforcing Agreements and Relational Contracting: Evidence from California Highway Procurement

Abstract: We empirically examine the impact of relationships between contractors and subcontractors on firm pricing and entry decisions in the California highway procurement market using data from auctions conducted by the California Department of Transportation. Relationships in this market are valuable if they mitigate potential hold-up problems and incentives for ex post renegotiation arising from contractual incompleteness. An important characteristic of informal contracts is that they must be self-enforcing, so the value of relationships between firms and suppliers depend on the extent of possibilities for future interaction. We construct measures of the stock of contractors' prior interactions with relevant subcontractors and, most importantly, an exogenous instrument to measure the future value of ongoing relationships that is orthogonal to contractor--subcontractor match-specific productivity. We find that a larger stock of relationships leads to a greater likelihood of entry and to lower bids. Importantly, this relationship does not hold in periods of time and areas with little future contract volume, suggesting that the value of the future is crucial in providing value for informal contracts. The Author 2012. Published by Oxford University Press on behalf of Yale University. All rights reserved. For Permissions, please email: journals.permissions@oup.com, Oxford University Press.

Ranked critical factors in PPP briefings

Abstract: Public-private partnerships (PPPs) are increasingly used to procure Australian infrastructure projects. As with all construction projects, the early briefing stages are often the most crucial in determining a successful outcome. There is, however, a lack of systematic research on the type and nature of the critical factors affecting the effectiveness and efficiency of PPP during this period. A literature review is presented of PPP usage in Australia, in which four main categories of factors (procurement, stakeholder, risk, and finance) are identified, each with several subfactors. A questionnaire survey involving state government stakeholders is also described, and a mathematical model that ranks the factors involved is developed. This is followed by an examination of the potential of the factors to help improve the PPP briefing stage for both public and private sectors.

Delegation vs. Control of Component Procurement Under Asymmetric Cost Information and Simple Contracts

Abstract: A manufacturer must choose whether to delegate component procurement to her tier 1 supplier or control it directly. Because of information asymmetry about suppliers' production costs and the use of simple quantity discount or price-only contracts, either delegation or control can yield substantially higher expected profit for the manufacturer. Delegation tends to outperform control when (1) the manufacturer is uncertain about the tier 1 supplier's cost and believes that it is likely to be high; (2) the manufacturer and the tier 1 supplier know the tier 2 supplier's cost or at least that it will be high; (3) the manufacturer has an alternative to engaging the tier 1 and tier 2 suppliers, such as in-house production; and (4) the firms use price-only contracts as opposed to quantity discount contracts. These results shed light on practices observed in the electronics industry.

Environmental Development of Emerging Economy Suppliers: Antecedents and Outcomes

Abstract: As supply chains spread toward emerging economies, Western buying firms frequently face the question of whether they should commit resources to develop their suppliers in these regions in terms of environmental issues. Supplier development researchers have just begun to consider environmental aspects, and thus far, the peer-reviewed literature has remained primarily qualitative, and often descriptive. Large-scale empirical evidence indicating the antecedents and benefits of environmental supplier development for a buying firm is still scarce. Addressing this gap, we use stakeholder theory to complement and extend the work of Ehrgott et al. (2011) and investigate how pressures from customers, governments, and employees act as antecedents to environmental supplier development. Furthermore, we build on the resource-based view to examine how supplier capabilities, buying firm environmental reputation, and organizational learning in the buying firm can result from such supplier development initiatives. We test the resulting model with a sample of 244 corporate procurement executives from the United States and Germany.

Principles in halal purchasing

Abstract: Purpose – The purpose of this conceptual article is to investigate the application of halal in purchasing. Design/methodology/approach – This article provides a discussion on the implications of halal for the purchasing function, in particular the purchasing portfolio matrix of Kraljic and the purchasing process model of van Weele. Findings – Halal leads to stronger partnerships with suppliers (strategic and leverage products) and adopting various strategies to secure continuity of supply (bottleneck products). Therefore, conventional commodity categories in certain industries can be allocated different for halal certified products and services, resulting in possible different product and supplier strategies. Halal requirements also have impact on the purchasing process; its tactical and operational purchasing activities. Research limitations/implications – This conceptual paper shows that halal has implications for the procurement strategy and purchasing process, key components of the procurement functio...

Health technology assessment, value-based decision making, and innovation.

Abstract: Background Identifying treatments that offer value and value for money is becoming increasingly important, with interest in how health technology assessment (HTA) and decision makers can take appropriate account of what is of value to patients and to society, and in the relationship between innovation and assessments of value. Methods This study summarizes points from an Health Technology Assessment International (HTAi) Policy Forum discussion, drawing on presentations, discussions among attendees, and background papers. Results and conclusions Various perspectives on value were considered; most place patient health at the core of value. Wider elements of value comprise other benefits for: patients; caregivers; the health and social care systems; and society. Most decision-making systems seek to take account of similar elements of value, although they are assessed and combined in different ways. Judgment in decisions remains important and cannot be replaced by mathematical approaches. There was discussion of the value of innovation and of the effects of value assessments on innovation. Discussion also included moving toward "progressive health system decision making," an ongoing process whereby evidence-based decisions on use would be made at various stages in the technology lifecycle. Five actions are identified: (i) development of a general framework for the definition and assessment of value; development by HTA/coverage bodies and regulators of (ii) disease-specific guidance and (iii) further joint scientific advice for industry on demonstrating value; (iv) development of a framework for progressive licensing, usage, and reimbursement; and (v) promoting work to better adapt HTA, coverage, and procurement approaches to medical devices.

Public-private partnerships versus traditional procurement: Innovation incentives and information gathering

Abstract: A government agency wants a facility to be built and managed to provide a public service. Two different modes of provision are considered. In a public-private partnership, the tasks of building and managing are bundled, whereas under traditional procurement, these tasks are delegated to separate private contractors. The two provision modes differ in their incentives to innovate and to gather private information about future costs to adapt the service provision to changing circumstances. The government agency's preferred mode of provision depends on the information gathering costs, the costs of innovation efforts, and on the degree to which effort is contractible.

Leveraging Open Innovation Using Intermediary Networks

Abstract: Open innovation, fuelled by the rise of the Internet, has made it feasible and cheaper for firms to open themselves up to a wide range of external sources of innovative ideas. The explosive growth of open innovation intermediary networks, such as InnoCentive or Linked-in, enables the rapid pairing of firms seeking knowledge to address a wide range of business challenges (seekers) with other firms or individuals who already have relevant knowledge (solvers or knowledge brokers). These intermediary networks allow procurement departments to source codified and un-codified knowledge from firms or individuals outside their traditional supplier networks using one-off transactional relationships. Although sourcing ideas in this way theoretically poses problems for knowledge search and transfer, we have found that companies can draw on processes and integration mechanisms developed by procurement and design engineering to develop effective organizational learning routines. These routines are strategically vital to source new ideas through open innovation using intermediary networks and create competitive advantage.

How much to make and how much to buy? An analysis of optimal plural sourcing strategies

Abstract: While many theories of the firm seek to explain when firms make rather than buy, in practice firms often make and buy the same input—they engage in plural sourcing. We argue that explaining the mix of external procurement and internal sourcing for the same input requires a consideration of complementarities across and constraints within modes of procurement. We create analytical foundations for making empirical predictions about when plural sourcing is likely to be optimal and why the optimal mix of internal and external sourcing may vary across situations. Our framework also proves useful for assessing the possible estimation biases in transaction level make-or-buy studies arising from ignoring complementarities and constraints. Copyright © 2013 John Wiley & Sons, Ltd.

Collaborative Procurement: A Relational View of Buyer–Buyer Relationships

Abstract: Collaborative procurement is increasingly on the policy agenda in many countries, yet problems with collaboration occur. This article adopts a relational theory perspective to explore the enablers of and barriers to collaboration in purchasing, helping identify success factors. The authors adopted a mixed qualitative/quantitative methodology and interviewed 51 senior staffers in the United Kingdom. They found that collaborative public procurement is hindered by local politics and differing priorities, supplier resistance, reliance on suppliers for data, and a lack of common coding systems. Enabling factors for collaborating with local governments include dealing with local issues and buying from small and medium-sized enterprises. For health care providers, important themes are product innovation and ensuring supply. The authors develop a list of enabling factors and show their effect on collaboration success. This may assist policy makers in identifying areas of guidance and help practitioners prevent problems in collaboration.

Public Procurement and Innovation: The Role of Institutions

Abstract: Contents: 1. Introduction 2. Public Procurement of Innovation Theory 3. Legal Institutions for Public Procurement of Innovation 4. Public Procurement of Innovation Diffusion 5. Public Procurement of Innovation as Collaboration 6. Public Procurement of Innovation as Endogenous - Exogenous Knowledge Conversion 7. Success Factors Public Procurement of Innovation 8. Concluding Remarks References Index

Determination of Disproportionate Tenders in Public Procurement

Abstract: Public procurement is one of the fundamental pillars of the construction sector and the understanding of its statutory regulation is one of the keys to success. The government regulates the concept of disproportionate tenders to avoid deals that are too low, something which could jeopardise the execution of the work or cause problems during implementation such as conflicting prices, project modifications and delays. The criteria for determining the disproportionality of the offers are numerous and each contracting authority determines which to use in each process by carrying out a comparative analysis. The results show that the formulas of disproportionality based on a percentage of the bid price are not useful, and the convenience of formulas based on the determination of a low reference which is calculated from both the average of the offers and the standard deviation.