Selling Co-products through a Distributor: The Impact on Product Line Design.
Production and Operations Management,
v. 28, no. 4 (April 2019): 1010-1032.
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Bibtex
@article{Lu2018, author = "Tao Lu and Ying-Ju Chen and Brian Tomlin and Yimin Wang", title ="Selling Co-products through a Distributor: The Impact on Product Line Design", journal="Production and Operations Management", year="2019", volume="28", number="4", pages="1010-1032",}
Abstract
A vertical co-product technology simultaneously produces multiple outputs that differ along a rankable quality metric. Co-product manufacturers often sell products through a distributor. We examine a setting in which a manufacturer sells vertically differentiated co-products through a self?interested distributor to quality-sensitive end customers. The manufacturer determines its production, product line design, and wholesale prices. The distributor determines its purchase quantities and retail prices. In traditional product?line design, products can be produced independently of each other and higher-quality products have higher production costs. This literature established that the length of the product line (i.e., difference between highest and lowest qualities) is greater in an indirect channel than in a direct channel. By contrast, co-products cannot be produced independently of each other. Among other findings, we establish that this interdependency causes the opposite channel effect: for co-products, the length of the product line is smaller in an indirect channel than in a direct channel. Additionally, we show that there exists a theoretical contract, combining revenue sharing and reverse slotting fees, that eliminates the indirect channel distortions in both product line design and output quantities.
Processing Time Ambiguity and Port Competitiveness.
Production and Operations Management,
v. 26, no. 12 (December 2017): 2187-2206.
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Bibtex
@article{Cheon2017, author = "Sanghyun Cheon and Chung-Yee Lee and Yimin Wang", title ="Processing Time Ambiguity and Port Competitiveness", journal="Production and Operations Management", year="2017", volume="26", number="12", pages="2187-2206",}
Abstract
Container seaports play an important role in cross-border logistics as firms increasingly expand their global footprint in sourcing, manufacturing and distribution. Besides convenience of access to hinterland regions, a key metric for a port's attractiveness is its processing time, that is, its ability to clear goods within a consistent, predictable time frame. Due to differences in infrastructure, government regulations, and operating procedures, ports may exhibit different degrees of predictability in processing times: some are more predictable while others are more ambiguous. We study how ambiguity in processing times affects a port's attractiveness under various circumstances. We find that even if a port maintains a consistent expected processing time, increased ambiguity can still affect its attractiveness to firms, although not always negatively. The effect of ambiguity depends on its nature, whether the shipments are time-sensitive, attitudes toward ambiguity, and trade terms surrounding shipments.
Dual Co-product Technologies: Implications for Process Development and Adoption.
Manufacturing & Service Operations Management,
v. 19, no. 4 (September 2017): 509-712.
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Bibtex
@article{Chen2017, author = "Ying-Ju Chen and Brian Tomlin and Yimin Wang", title ="Dual Co-product Technologies: Implications for Process Development and Adoption", journal="Manufacturing \& Service Operations Management", year="2017", volume="19", number="4", pages="509-712",}
Abstract
Many industries operate technologies in which multiple outputs (coproducts) are jointly produced. In some settings (vertical) the coproducts differ along a performance dimension and are substitutable. In other settings (horizontal) the coproducts differ in their applications and are not substitutable. In both cases, three important attributes of a coproduct technology are its processing cost, overall yield, and coproduct split, i.e., the proportion of each output produced. For both vertical and horizontal settings with deterministic market sizes, we characterize the optimal pricing and production decisions of a monopoly firm with two technologies. We establish the necessary and sufficient conditions for dual activation (i.e., using both technologies) to be optimal. Dual activation is driven by differences in marginal costs across the two technologies. There is an additional motive for dual activation in the horizontal setting: the desire to generate a product mix that better resembles the market mix. Building on the optimal production analysis, we characterize the optimal adoption-and-usage strategy of a firm with one incumbent technology considering a new technology. We establish the conditions for which a new technology will displace the incumbent or be used with the incumbent, and highlight some important adoption and usage differences between vertical and horizontal settings. Results are extended to the setting with uncertain market size(s).
Improving Reliability of a Shared Supplier with Competition and Spillovers.
European Journal of Operational Research,
v. 236, no. 2 (July 2014): 499-510.
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Bibtex
@article{Wang2014, author = "Yimin Wang and Yixuan Xiao and Nan Yang", title ="Improving Reliability of a Shared Supplier with Competition and Spillovers", journal="European Journal of Operational Research", year="2014", volume="236", number="2", pages="499-510",}
Abstract
Supplier reliability is a key determinant of a manufacturer’s competitiveness. It reflects a supplier’s capability of order fulfillment, which can be measured by the percentage of order quantity delivered in a given time window. A perfectly reliable supplier delivers an amount equal to the order placed by its customer, while an unreliable supplier may deliver an amount less than the amount ordered. Therefore, when suppliers are unreliable, manufacturers often have incentives to help suppliers improve delivery reliability. Suppliers, however, often work with multiple manufacturers and the benefit of enhanced reliability may spill over to competing manufacturers. In this study, we explore how potential spillover influences manufacturers’ incentives to improve supplier’s reliability. We consider two manufacturers that compete with imperfectly substitutable products on Type I service level (i.e., in-stock probability). The manufacturers share a common supplier who, due to variations in production quality or yield, is unreliable. Manufacturers may exert efforts to improve the supplier’s reliability in the sense that the delivered quantity is stochastically larger after improvement. We develop a two-stage model that encompasses supplier improvement, uncertain supply and random demand in a competitive setting. In this complex model, we characterize the manufacturers’ equilibrium in-stock probability. Moreover, we characterize sufficient conditions for the existence of the equilibrium of the manufacturers’ improvement efforts. Finally, we numerically test the impact of market characteristics on the manufacturers’ equilibrium improvement efforts. We find that a manufacturer’s equilibrium improvement effort usually declines in market competition, market uncertainty or spillover effect, although its expected equilibrium profit typically increases in spillover effect.
Co-product Technologies: Product Line Design and Process Innovation.
Management Science,
v. 59, no. 12 (December 2013): 2772-2789.
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Bibtex
@article{Chen2013, author = "Ying-Ju Chen and Brian Tomlin and Yimin Wang", title ="Co-product Technologies: Product Line Design and Process Innovation", journal="Management Science", year="2013", volume="59", number="12", pages="2772-2789",}
Abstract
The simultaneous production of different outputs (coproducts) is observed in the chemical, material, mineral, and semiconductor industries among others. Often, as with microprocessors, the outputs differ in quality in the vertical sense and firms classify the output into different grades (products). We analyze product line design and production for a firm operating a vertical coproduct technology. We examine how the product line and profit are influenced by the production cost and output distribution of the technology. We prove that production cost influences product line design in a fundamentally different manner for coproduct technologies than for uniproduct technologies where the firm can produce products independently. For example, with coproducts, the size and length of the product line can both increase in the production cost. Contrary to the oft-held view that variability is bad, we prove the firm benefits from a more variable output distribution if the production or classification cost is low enough.
Specification vagueness and supply quality risk.
Naval Research Logistics,
v. 60, no. 3 (March 2013): 222-236.
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Bibtex
@article{Wang2013, author = "Yimin Wang", title ="Specification vagueness and supply quality risk", journal="Naval Research Logistics", year="2013", volume="60", number="3", pages="222-236",}
Abstract
Specifying quality requirement is integral to any sourcing relationship, but vague and ambiguous specifications can often be observed in practice, especially when a buyer is in the initial stage of sourcing a new product. In this research, we study a supplier's production incentives under vague or exact quality specifications. We prove that a vague specification may in fact motivate the supplier to increase its quantity provision, resulting in a higher delivery quality. Vague quality specification can therefore be advantageous for a buyer to screen potential suppliers with an initial test order, and then rely on the received quality level to set more concrete quality guidelines. There is a degree, though, to which vague quality specification can be effective, as too much vagueness may decrease the supplier's quantity provision and hence the expected delivery quality.
Target pricing: Demand-side versus supply-side approaches.
International Journal of Production Economics,
v. 136, no. 1 (March 2012): 172-184.
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Bibtex
@article{Li2012, author = "Hongmin Li and Yimin Wang and Rui Yin and Thomas Kull and Thomas Choi", title ="Target pricing: Demand-side versus supply-side approaches", journal="International Journal of Production Economics", year="2012", volume="136", number="1", pages=" 172-184",}
Abstract
The practice of target pricing has been a key factor in the success of Japanese manufacturers. In the more commonly known demand-side approach, the target price for the supplier equals the manufacturer's market price less a percent margin for the manufacturer but no cost-improvement expenses are shared. In the supply-side approach, cost-improvement expenses are shared and the target price equals the supplier's cost plus a percent margin for the supplier. Using a general oligopoly and Cournot duopoly models, we characterize the equilibrium and optimal policy for each approach under various conditions. We find that sharing cost-reduction expenses allows the manufacturer using the supply-side approach to attain competitive advantage in the form of increased market share and higher profit, particularly in industrial conditions where margins are thin and price sensitivities are high.
Capacity investment under responsive pricing: Implications of market entry choice.
Decision Sciences ,
v. 43, no. 1 (February 2012): 107-140.
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Bibtex
@article{Wang 2012, author = "Yimin Wang", title ="Capacity investment under responsive pricing: Implications of market entry choice", journal="Decision Sciences ", year="2012", volume="43", number="1", pages="107-140",}
Abstract
We consider a manufacturer's new market entry problem when it already has some established facility in its existing market. We consider two common market entry strategies: the export strategy and the foreign direct investment (FDI) strategy. In the export strategy the firm increases the capacity at its existing facility and subsequently allocates the output to the existing and the new market dynamically, depending on realized market conditions. The export strategy is a flexible strategy. In the FDI strategy, the firm invests in a dedicated capacity to serve the new market only. The FDI strategy is a (partially) dedicated strategy. We study these two strategies from a planning perspective, that is, how the firm’s strategy choice influences the optimal capacity levels. We find that the firm’s strategy choice can significantly impact the optimal capacity investment levels. We prove, for example, that the firm may enter the new market in the export strategy but not in the FDI strategy, even if the capacity investment cost is identical in the existing and the new market. In addition, we prove that the firm may invest a strictly higher capacity level in the export strategy than that in the FDI strategy. We also prove that new market entry in the FDI strategy may strictly decrease the firm’s supply to its existing market but this is not so in the export strategy, and hence policy makers should carefully consider the implications of trade regulations on firms’ market entry choices.
Regulatory trade risk and supply chain strategy.
Production and Operations Management,
v. 20, no. 4 (September 2011): 522-540.
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Bibtex
@article{Wang2010, author = "Yimin Wang and Wendell Gilland and Brian Tomlin", title ="Regulatory trade risk and supply chain strategy", journal="Production and Operations Management", year="2010", volume="20", number="4", pages="522-540",}
Abstract
Trade regulations are an important driver of supply chain strategy in many industries. For example, the textile, paper, chemical, and steel industries grapple with significant levels of non-tariff barriers (NTBs) such as safeguard controls and countervailing duties. We explore three often observed supply chain strategies in industries subject to NTBs; direct procurement, split procurement, and outward processing arrangements (OPAs). We characterize the optimal procurement quantities for each of these three strategies, and examine how industry and country characteristics influence the firm's strategy preference. For example, we establish that the direct and split strategy profits increase in the NTB price variance but decrease in the mean price. These effects are sufficiently large that NTB price characteristics can dictate which supply chain strategy is preferred. Both the cost disadvantage and lead-time advantage of domestic production are also significant influencers of the preferred strategy, as is the domestic-country mandated production constraint associated with the OPA strategy.
Mitigating supply risk: Dual sourcing or process improvement?.
Manufacturing & Service Operations Management,
v. 13, no. 4 (November 2009): 439-451.
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Bibtex
@article{Wang2009b, author = "Yimin Wang and Wendell Gilland and Brian Tomlin", title ="Mitigating supply risk: Dual sourcing or process improvement?", journal="Manufacturing \& Service Operations Management", year="2009", volume="13", number="4", pages="439-451",}
Abstract
Surveys suggest that supply chain risk is a growing issue for executives and that supplier reliability is of particular concern. A common mitigation strategy is for the buying firm to expend effort improving the reliability of its supply base. We explore a model in which a firm can source from multiple suppliers and/or exert effort to improve supplier reliability. For both random capacity and random yield types of supply uncertainty, we propose a model of process improvement in which improvement efforts (if successful) increase supplier reliability in the sense that the delivered quantity (for any given order quantity) is stochastically larger after improvement. We characterize the optimal procurement quantities and improvement efforts and generate managerial insights. For random capacity, improvement is increasingly favored over dual sourcing as the supplier cost heterogeneity increases, but dual sourcing is favored over improvement if the supplier reliability heterogeneity is high. In the random yield model, increasing cost heterogeneity can reduce the attractiveness of improvement, and improvement can be favored over dual sourcing if the reliability heterogeneity is high. A combined strategy (improvement and dual sourcing) can provide significant value if suppliers are very unreliable and/or capacity is low relative to demand.
To Wait or not to wait: Optimal ordering under lead time uncertainty and forecast updating.
Naval Research Logistics,
v. 56, no. 8 (October 2009): 766-779.
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Bibtex
@article{Wang2009a, author = "Yimin Wang and Brian Tomlin", title ="To Wait or not to wait: Optimal ordering under lead time uncertainty and forecast updating", journal="Naval Research Logistics", year="2009", volume="56", number="8", pages="766-779",}
Abstract
There has been a dramatic increase over the past decade in the number of firms that source finished product from overseas. Although this has reduced procurement costs, it has increased supply risk; procurement lead times are longer and are often unreliable. In deciding when and how much to order, firms must consider the lead time risk and the demand risk, i.e., the accuracy of their demand forecast. To improve the accuracy of its demand forecast, a firm may update its forecast as the selling season approaches. In this article we consider both forecast updating and lead time uncertainty. We characterize the firm's optimal procurement policy, and we prove that, with multiplicative forecast revisions, the firm's optimal procurement time is independent of the demand forecast evolution but that the optimal procurement quantity is not. This leads to a number of important managerial insights into the firm's planning process. We show that the firm becomes less sensitive to lead time variability as the forecast updating process becomes more efficient. Interestingly, a forecast-updating firm might procure earlier than a firm with no forecast updating.
Pricing and operational recourse in coproduction systems.
Management Science,
v. 54, no. 3 (March 2008): 522-537.
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Bibtex
@article{Tomlin2008, author = "Brian Tomlin and Yimin Wang", title ="Pricing and operational recourse in coproduction systems", journal="Management Science", year="2008", volume="54", number="3", pages="522-537",}
Abstract
Coproduction systems, in which multiple products are produced simultaneously in a single production run, are prevalent in many industries. Such systems typically produce a random quantity of vertically differentiated products. This product hierarchy enables the firm to fill demand for a lower-quality product by converting a higher-quality product. In addition to the challenges presented by random yields and multiple products, coproduction systems often serve multiple customer classes that differ in their product valuations. Furthermore, the sizes of these classes are uncertain. Employing a utility-maximizing customer model, we investigate the production, pricing, downconversion, and allocation decisions in a two-class, stochastic-demand, stochastic-yield coproduction system. For the single-class case, we establish that downconversion will not occur if prices are set optimally. In contrast, we show that downconversion can be optimal in the two-class case, even if prices are set optimally. We consider the benefit of postponing certain operational decisions, e.g., the pricing or allocation-rule decisions, until after uncertainties are resolved. We use the term recourse to denote actions taken after uncertainties have been resolved. We find that recourse pricing benefits the firm much more than either downconversion or recourse allocation do, implying that recourse demand management is more valuable than recourse supply management. Special cases of our model include the single-class and two-class random-yield newsvendor models.
On the value of mix flexibility and dual sourcing in unreliable newsvendor networks.
Manufacturing & Service Operations Management,
v. 7, no. 1 (January 2005): 37-57.
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Bibtex
@article{Tomlin2005, author = "Brian Tomlin and Yimin Wang", title ="On the value of mix flexibility and dual sourcing in unreliable newsvendor networks", journal="Manufacturing & Service Operations Management", year="2005", volume="7", number="1", pages="37-57",}
Abstract
We connect the mix-flexibility and dual-sourcing literatures by studying unreliable supply chains that produce multiple products. We consider a firm that can invest in product-dedicated resources and totally flexible resources. Product demands are uncertain at the time of resource investment, and the products can differ in their contribution margins. Resource investments can fail, and the firm may choose to invest in multiple resources for a given product to mitigate such failures.