M&SOM Review

In November 2012, a fire in the Tazreen Fashions factory in Dhaka, Bangladesh, killed at least 112 workers. Five months later, in April 2013, Rana Plaza, an eight-story building in Dhaka, Bangladesh, that housed multiple garment factories and other commercial establishments, collapsed resulting in the deaths of more than 1100 people and injuring nearly 2500 people. These horrid events brought to light the stark reality of substandard working conditions in supplier factories of name-brand retail firms from North America and Europe, and earned such factories the label “sweatshops.”

View Full Post »

Many companies award supply contracts through competitive bidding, where the suppliers compete against each other in a reverse auction. Most of the research takes the existence of the suppliers as a given, and focuses on how the buyer can get the best market outcome with this fixed set of suppliers.

View Full Post »

A newspaper in Inner Mongolia reported that 39 Chinese workers were poisoned by hydrogen chloride, and were admitted to a hospital in Wuhai city on March 23, 2008. All workers were exposed to the poison gas when working at a plant that belongs to the Northeast Pharmaceutical Group (000597.SZ), producing chemical synthetic and bio-fermentation Active Pharmaceutical Ingredients (APIs) for customers such as BASF Pharmaceutical (www.pharmaceutical.basf.com). The stock price of Northeast Pharmaceutical Group dropped by 2.03 percent in the Shanghai Stock Exchange and the stock price of its customer BASF dropped by 1.05 percent in the Frankfurt Stock Exchange on the same day when the news was announced on March 23, 2008. Was this a coincidence?

View Full Post »

In recent years, carsharing has been widely adopted as a means of sustainable transportation. Cities around the world have launched numerous carshare initiatives hoping to relieve their urban transportation problems. Carshare service providers, such as Zipcar, Car2Go, and DriveNow—in partnership with leading automobile manufacturers such as Toyota, Daimler, and BMW—have undergone rapid growth and expansion. In the United States alone, it is estimated that over 1.3 million individual users participated in the sharing of 20,000 vehicles through different carshare services as of July 2015 (EcoPlan Association 2015).

View Full Post »

Most forests in the United States and Europe are owned by nonindustrial owners rather than industrial owners. The distinction in ownership is important since the goals of the two types of owners differ. Whereas the industrial owners focus on maximizing the profitability, the nonindustrial ones strive for periodic and stable harvesting profits to cover the cost of living and other recurring financial liabilities. However, achieving reliability and stability in the harvesting profit stream forests is challenging due to uncertainties in wood prices and growth of trees, for example.

View Full Post »

The Problem of Capacity Investment in Supply Chains

Retailers and manufacturers often face the challenge of ensuring that their suppliers develop and maintain sufficient production capacity and capabilities for consumer demand. For example, many of the delays for Boeing’s 787 Dreamliner came from suppliers having insufficient production capacity and/or technical capabilities. In particular, several of the early postponements were due to a shortage of fasteners after the capacity reductions caused by the industry’s decline following the 9/11 attacks. As demand for fasteners increased during the Dreamliner roll-out, capacity failed to catch up: in 2007 global demand for hi-lock fasteners exceeded global capacity by 110 million units (40% more than the global capacity). Another more recent example of capacity issues includes Apple and its new iPhone. Suppliers have already fallen behind schedule due to a lack of production capacity, which will likely contribute to reduced profits.

View Full Post »

Ever-increasing competition in global markets has forced many firms to outsource their non-core operations to focus on their core competencies. While the outsourcing benefits are clear, it may also bring new challenges on how to manage global sourcing. Two practical issues may arise when a buyer tries to assure supply in outsourcing. First, when devising a sourcing strategy, the buyer often does not have perfect information about the supplier’s cost structure; the supplier’s cost structure is highly confidential information because it conveys significant bargaining power when negotiating a contract with a buyer. Second, the suppliers’ actions may not be verifiable or enforceable. In particular, the contracted capacity may not be enforceable for a couple of reasons: First, capacity is a complex decision that involves many factors, including the supplier’s managerial effort; thus, when a supplier fails to deliver the promised quantity, it might be hard to verify whether this is due to underinvestment in effort or reasons beyond the supplier’s control. Second, if the cost of enforcement (e.g., the cost of capacity verification and the cost of a lawsuit) is prohibitively high, contract terms that penalize a dishonest supplier might not be credible. Due to lack of enforcement, the supplier may purposely deviate from the agreed capacity, making capacity investment a noncontractible decision.

View Full Post »

Economies are at the forefront of a major innovation and transformation of supply chains in several industries including automotives, electronics/semiconductors, and life-sciences. Conventionally closed and commoditized supply chains are enjoying a new burst of innovation both in the structure and function – powered by innovative technology and intellectual property (IP) in the form of artificial intelligence, gene sequencing, and Internet of everything. In such technology supply chains, which are a major focus of this paper, a specialist upstream supplier, referred to as a technology supplier, invests in R&D to gain patents, copyrights, or other forms of IP. The technology IP is then licensed and embedded in products designed by one or more downstream companies; these products are then launched and distributed to the market.

View Full Post »

Companies often engage in alliances for the development and introduction of new products. These alliances play a particularly important role in the highly innovative, and lucrative, biopharmaceutical industry. The global sale of biopharmaceutical products has surpassed $1 trillion annually. Much of this value comes from on-patent new product introductions. Over half of all new product approvals are awarded to alliances.

View Full Post »

Gig-economy platforms like Uber, Lyft, Postmates, and Instacart have created marketplaces in which services are performed on-demand for consumers by independent service providers. This arrangement, referred to as “self-scheduling,” allows providers the flexibility to choose when, where, and how much they work. Furthermore, the platform requires no advance commitment from providers regarding their working pattern. Consequently, providers’ interest in working responds in real time to changes in the incentives offered by the platform.

View Full Post »