Volume 3:4

Copies of these published papers may be downloaded from Informs Online

Title: Agility in Retail Banking: A Numerical Taxonomy of Strategic Service Groups

Author(s): Larry Menor, Aleda Roth, and Charlotte Mason

Abstract: This research demonstrates that operations agility—defined as the ability to excel simultaneously on operations capabilities of quality, delivery, flexibility and cost in a coordinated fashion—is a viable option for retail banks encountering increasing environmental change. The question of whether there is empirical evidence that services, specifically retail banks, display the characteristics of agility like their manufacturing counterparts is open to debate. Conventional wisdom in operations management suggests that most successful services trade off one capability for another. Drawing from the resource-based view of the firm, combinative capabilities view, and the cybernetics work of Ashby, theoretical arguments suggest the contrary. The agility paradigm is viable in environments calling for a mix of strategic responses. Applying cluster analytic techniques to a sample of retail banks, using capabilities as taxons, we identify four strategic service groups: agile, traditionalists, niche, and straddlers. Our empirical results provide thematic explanations consistent with theory that account for how the agile strategic group offers a unique configuration of service concept, resource competencies, strategic choices and business orientation. Profiles of the operations strategies of each strategic service group suggest that each group has found a fit between what certain segments of the market may want and what they have to offer. In particular, we found that the agile group exhibited greater resource competencies than its counterparts, requiring greater investments in infrastructure and technology. Consistent with theory, agile banks performed better over time on an absolute measure of return on assets.

The Consulting Senior Editor was Luk van Wassenhove

The manuscript was submitted on February 22, 1999, subject to four reviews with 598 days in revision. The average review cycle time was 78.5 days.

Corresponding author: Larry Menor, University of Western Ontario, Richard Ivey School of Business, 1151 Richmond Street, North London, Ontario N6A 3K7, Canada. Phone: 519-661-2103. Fax: 519-661-3959. E-mail: lmenor@ivey.uwo.ca

Title: Selling to the Newsvendor: An Analysis of Price-Only Contracts

Author(s): Martin Lariviere, Evan Porteus

Abstract: We consider a simple supply-chain contract in which a manufacturer sells to a retailer facing a newsvendor problem and the lone contract parameter is a wholesale price. We develop a mild restriction satisfied by many common distributions that assures that the manufacturer’s problem is readily amenable to analysis. The manufacturer’s profit and sales quantity increase with market size, but the resulting wholesale price depends on how the market grows. For the cases we consider, we identify relative variability (i.e., the coefficient of variation) as key: As relative variability decreases, the retailer’s price sensitivity decreases, the wholesale price increases, the decentralized system becomes more efficient (i.e., captures a greater share of potential profit), and the manufacturer’s share of realized profit increases.

Decreasing relative variability, however, may leave the retailer severely disadvantaged as the higher wholesale price reduces his profitability. We explore factors that may lead the manufacturer to set a wholesale price below that which would maximize her profit, concentrating on retailer participation in forecasting and retailer power. As these and other considerations can result in a wholesale price below what we initially suggest, our base model represents a worst-case analysis of supply-chain performance.

The Consulting Senior Editor was Stephen Graves

The manuscript was submitted on May 10, 1999, subject to 4 reviews with 721 days in revision. The average review cycle time was 46.25 days.

Corresponding author: Martin Larivieret, Northwestern University, MEDS, Kellogg School, 2001 Sheridan Roa, Evanston, IL 60208-2009. Phone: (847) 491-5461. Fax: (847) 467-1220. E-mail: m-lariviere@kellogg.nwu.edu.

Title: Creating an Inventory Hedge for Markov-Modulated Poisson Demand: An Application and Model

Author(s): Stephen Graves and Hari Abhyankar

Abstract: Many firms face environments with long production lead times, great product variety, and uncertain, non-stationary demand. A challenge is how to plan production and inventories to provide the best customer service at the least cost. In this paper, we first describe an application at Teradyne in which we implemented an inventory hedge to protect against cyclic demand variability. Based on this experience, we develop a model to understand better the efficacy of this hedging policy. We model an inventory system for a single aggregate product with a Markov-modulated Poisson demand process. We provide approximate performance measure for this system and develop a relevant optimization problem for determining the size and location of an intermediate-decoupling inventory. We use this optimization to show the value of an intermediate-decoupling inventory as a hedge for cyclic demand environments.

The Consulting Senior Editor was Paul Zipkin.

The manuscript was submitted on March 22, 2000, subject to four reviews with 313 days in revision. The average review cycle time was 46 days.

Corresponding author: Stephen Graves, Massachusetts Institute of Technology, Sloan School of Management, Room E-40. 4391 Amherst Street, Cambridge, MA 02139-4307. Phone: 617-253-6602. Fax: 617-253-1462. E-Mail: sgraves@mit.edu

Title: A Simple Robust Lead-time Quoting Policy

Author(s): Wallace Hopp and Melanie Roof Sturgis

Abstract: We examine lead-time quoting policies for minimizing average lead-time subject to customer service constraints on fill rate, tardiness or relative tardiness in simple systems with exponential and normal processing times. By studying the resulting safety lead-times implied by each policy we gain insight into why some policies perform more robustly with respect to different measures of customer service than do others. This analysis suggests that a simple constant safety lead-time policy should reasonably work well under most conditions. A series of simulation experiments of more complex production environments indicates that the constant safety lead-time policy does indeed exhibit robust performance. This, plus the fact that it is  extremely simple to adapt to a wide range of production environments, makes it an attractive basis for real-world lead-time quoting system.

The Consulting Senior Editor was Lawrence Wein

The manuscript was submitted on April 12, 1999, subject to three reviews with 641 days in revision. The average review cycle time was 71.3 days.

Corresponding author: Wallace Hopp, Northwestern University Department of Industrial Engineering, www5 North Campus Drive, Evanston, IL 60208-3119. Phone: 847-491-3669. Fax: 847-491-8005. E-mail: hopp@iems.nwu.edu

Title: Coordinating Independent Buyers in a Distribution System to Increase Vendor's Profits

Author(s): Qinan Wang

Abstract: We study the coordination of a two-echelon distribution system where a vendor distributes a single product to a set of independent buyers. The problem is analyzed as a Stackelberg game in which the vendor acts as the leader and buyers act as followers. A simple strategy is developed for the vendor to employ a uniform quantity discount policy to coordinate buyers’ replenishment times by the power-of-two policy. Solution procedures are developed for the equilibrium strategy. It is shown that time coordination generally has a substantial benefit for the vendor, although the benefit to the buyers may be limited. Furthermore, uniform quantity discounts to all buyers are normally feasible but not sufficient to achieve perfect channel coordination when buyers act independently. The proposed strategy obtains a high proportion of the maximum benefit under perfect channel coordination.

The Consulting Senior Editor was Stephen Graves.

The manuscript was submitted on May 19, 2000, subject to four reviews with 168 days in revision. The average review cycle time was 74.75 days.

Corresponding author: Qinan Wang, Nanyang Technological University, Nanyang Business School, Sanyang Avenue, 63979-8, Singapore Phone: 65-790-5002. Fax: 65-791-3697. E-mail: aqnwang@ntu.edu.sg

Title: A General Framework for the Study of Decentralized Distribution Systems

Author(s): Ravi Anupindi, Yehuda Bassok, Eitan Zemel

Special Interest: Use of Information In Managing Supply Chains

Abstract: We develop a general framework for the analysis of decentralized distribution systems. We carry the analysis in terms of a simplified model, which entails N retailers who face stochastic demands and hold stocks locally and/or at one or more central locations. An exogenously specified fraction of any unsatisfied demand (demand greater than locally available stock) at a retailer could be satisfied using excess stocks at other retailers and/or stocks held at a central location.  We consider inventory ordering and allocation decisions. The operational decisions of inventory and allocation of stocks and the financial decision of allocation of revenues/costs must be made in a way consistent with the individual incentives of the various independent retailers. We develop a “co-opetitive” framework for the sequential decisions of inventory and allocation. We introduce the notion of claims that allows us to separate the ownership (with decision rights) and the location of inventories in the system. For the cooperative shipping and allocation decision, we use the concept of core and develop sufficient conditions for the existence of the core. For the inventory decision, we develop conditions for the existence of a pure strategy Nash Equilibrium. For this decentralized system, we show that there exists an allocation mechanism that achieves the first-best solution for inventory deployment and allocation. We develop conditions under which the first best equilibrium will be unique. Our model can be easily generalized to include complicated ownership structures such as “super dealers”, partnerships, “inventory speculators”, and situations in retail e-commerce settings such as “click-through arrangements”, separation of “demand generators” and “fulfillment houses”, etc. It can also be applied to situations involving capacity allocations and product substitutions.

The Consulting Senior Editor was Hau Lee

The manuscript was submitted on February 23, 2001, subject to two reviews with 105 days in revision. The average review cycle time was 69.5 days.

Corresponding author: Ravi Anupindi, Stern School of Management, Tisch Hall, Suite 7-10t, 40 West 4th Street, New York, NY 10012-1118. Phone: (212) 998-0487. Fax: (212) 995-4227. E-mail: anupindi@stern.nyu.edu.

Title: Play It Again, Sam? Optimal Replacement Policies for a Motion Picture Exhibitor

Author(s): Sanjeev Swami, Martin Puterman, and Charles Weinberg

Abstract: Every week, motion picture exhibitors – the retailers in the motion picture supply chain – must decide whether to keep or replace the movies playing in their theaters in light of the past week’s sales data.  This decision is complex because of the dynamic decision environment, the uncertainty of demand, complex revenue sharing terms between the retailer and the distributor, the need to commit to new movies for several weeks and the competitive release patterns of movies. We formulate and solve this problem as a Markov decision process (MDP) model, obtaining optimal policies for the exhibitor. We examine the nature of the normative solutions to differences in quality and quantity of available movies, differing contract terms and accuracy of estimates. We also explore the possibility of characterizing the structure of the optimal policy as a control limit policy, similar to that used in machine or equipment replacement problems. Such policies provide easy-to-implement guidelines for managers.  In this case, we find that based on the comparative revenue potential of new movie as compared to one already playing in the theater, a heuristic decision rule to “Retain” or “Replace” the current movie can be developed.

The Consulting Senior Editors were Morris Cohen and Josh Eliashberg

The manuscript was submitted on July 14, 1999, subject to three reviews with 580 days in revision. The average review cycle time was 66.3 days.

Corresponding author: Martin Puterman, University of British Columbia Commerce, Director, Center for Operations Excellence, 2053 Main Mall, Vancouver, British Columbia V6T 1Z2, Canada. Phone: 604-822-8388. Fax: 604-822-1544. E-mail: marty@coe.ubc.ca

Copies of these published papers may be downloaded from Informs Online