Abraham Seidmann

Production batching with machine breakdowns and safety stocks

We study the problem of selecting the economic lot size for an unreliable manufacturing facility with a constant failure rate and general randomly distributed repair times. Safety stocks must be used to meet the managerially prescribed service level (the fraction of lost sales) because these stochastic interventions reduce the effective production capacity. We develop bounds on the range of feasible service levels and investigate the impact of several system parameters on this range. We introduce an easily implementable production control policy (but do not establish the optimality of its structure) and prove that under this policy the safety stock dynamics can be characterized fully by a renewal process analogous to the workload process of a special single server queueing system. This analogy is exploited in deriving exact and approximate expressions for the safety stock holding costs. Several operational insights are revealed by experimenting with the models developed here. We show how the results can b...

Incomplete contracting issues in information systems development outsourcing

Abstract Outsourcing is the subcontracting of some or all the information systems functions by one firm to another. An incomplete contracting framework is used to examine the relative merits of outsourcing certain information systems development tasks. The focus is on investigating the effects of information asymmetry and different profit sharing rules on the decision of whether to outsource or to use an internal development team. The modeling indicates that the value generated from outsourcing the development effort comes primarily from the specific investments made by the external group, and that outsourcing dominates internal development when this investment is relatively more important than investments by the internal user group. This provides one economic explanation for the coexistence of both internal development teams and of various outsourcing services.

Design and operation of an order-consolidation warehouse: Models and application

Abstract A warehouse is a service facility, often comprising the only view that customers actually have of a manufacturing firm. The management of this facility has significant leverage over order leadtimes and fill-rate reliability. As with other service facilities, system design and operation are decision problems that are closely interlinked. In this paper we describe and model in general terms the composite design and operating problems for a typical order-consolidation warehouse. These problems include warehouse layout, equipment and technology selection, item location, zoning, picker routing, pick list generation and order batching. The complexity of the overall problem mandates developing a new multi-stage hierarchical decision approach. Our hierarchical approach utilizes a sequence of coordinated mathematical models to evaluate the major economic tradeoffs and to prune the decision space to a few superior alternatives. Detailed simulation employing actual warehousing data is then used for validation and fine tuning of the resulting design and operating policies. We describe the application of this analytical approach to an automotive spare-parts distribution centre. The case study demonstrates substantial savings in operating costs and highlights several generic management tradeoffs.

The effects of task and information asymmetry on business process redesign

Abstract The effective design of business processes is a subject of considerable importance to corporations today. Our research develops a theoretical framework for process design that is aimed at providing practical guidelines for process managers. The abundance of context-specific case studies which exist today share many success stories but provide little in terms of a general methodological approach. In this paper, we describe our general framework for the analysis and design of business processes. We outline a typical business process and critically evaluate typical pre- and post-reengineering process design issues. Explicit aspects of our analysis address workflow design, task bundling, technological enablers, and performance-based incentives. We examine the effects of task size asymmetry and performance information asymmetry on the optimal process design. Our results indicate that, with increased asymmetry, certain types of process designs become more desirable. Furthermore, we look at the interaction between job asymmetry and other process design factors such as knowledge intensity and level of job customization. Finally, we show when asymmetry can cause process reengineering efforts to complement the classic performance-based incentive compensation model. Practical implications of our results are illustrated for a variety of process design cases.

Analyzing the Simultaneous Use of Auctions and Posted Prices for Online Selling

Many firms in the business-to-consumer market sell identical products online using auctions and posted prices at the same time. In this paper, we develop and analyze a model of the key trade-offs sellers face in such a dual-channel setting built around the optimal choice of three design parameters: the posted price, the auction lot size, and the auction duration. Our results show how a monopolist seller can increase his revenues by offering auctions and a fixed price concurrently, and we identify when either a posted price only or a dual-channel strategy is optimal for the seller. We model consumer choice of channels, and thus market segmentation, and find a unique (symmetric) auction-participation equilibrium exists in which consumers who value the item for more than its posted price use a threshold policy to choose between the two channels. The threshold defines an upper bound on the remaining time of the auction. We explain how optimizing the design parameters enables the seller to segment the market so that the two channels reinforce each other and cannibalization is mitigated. Our findings also demonstrate that there are two dominant auction design strategies in this setting: one-unit auctions that tend to be short and long multiunit auctions. The optimal strategy for the seller depends on the consumer arrival rate and the disutility of delivery delay incurred by high-valuation consumers. In either case, the optimal design of the dual channel can significantly outperform a single posted-price channel. We show even greater benefits over a naive approach to managing the two channels that optimizes each independently. Our results suggest that unless firms jointly manage these online channels, they may find that adding auctions actually reduces their revenues.

Software development outsourcing contract: structure and business value

We address the case where a user contracts for the delivery of a new information system from an independent vendor, both of whom are risk-neutral. The delivery task is partitioned into two consecutive stages: system design and software development. The parties can contract for each stage separately or specify an initial contract that covers both stages. We compare the impact of different contracting structures on prices, project value, project completion probability, and the value to the developer of obtaining the first stage of the contract. Specifically, we show that a two-stage contracting can lead to a higher business value than stage-by-stage contracting. When there is competition for the design stage, the vendors bear more of the software development risk, and the probability the system will be completed depends on the contract structure.

Using RFID for the management of pharmaceutical inventory - system optimization and shrinkage control

Motivated by a case study at a radiology practice, we analyze the incremental benefits of RFID technology over barcodes for managing pharmaceutical inventories. Unlike barcode technology, RFID enables accurate real-time visibility, which in turn enables several process improvements. We analyze the impact of automatic counting and discuss the system redesign critical to optimizing the inventory policy and eliminating shrinkage. We show that continuous review is superior to periodic review whenever accurate real-time information is available at no additional cost. We explain how RFID-enabled strategies vary with inventory parameters and provide a cost-benefit analysis for the implementation of RFID for the radiology practice.

Perpetual Versus Subscription Licensing Under Quality Uncertainty and Network Externality Effects

We discuss the optimal way for a software vendor to license software: a perpetual license at a posted price, a subscription contract that subscribers receive automatic updates for periodic payment, or a hybrid approach that involves both. By addressing specific issues in the software market such as network effects, quality uncertainty, upgrade compatibility, and the vendors ability to commit to future prices in a dynamic environment, we demonstrate how a software vendor can manage the trade-offs of perpetual licensing and subscription to optimize profit, as well as the corresponding welfare effect on consumers. Although the subscription model helps the vendor lock in consumers so as to increase profit when there is great uncertainty associated with the next version software, it destroys the path dependence in creating network externalities. Therefore, when the network effect is sufficiently large, it is more profitable for a software vendor to provide both perpetual licensing and subscription.

Strategies for transitioning 'old economy' firms to e-business

When devising an e-business strategy for legacy firms, be wary of the five myths of e-business development while embracing the five guidelines of managerial responsibility and leadership.

Intelligent control schemes for automated storage and retrieval systems

A new information system approach to the operational controls of automated storage and retrieval systems (AS/RS) is developed and examined. This approach is based on artificial intelligence, state-operator framework for problem solving. Gradually increasing the information level, several operational goal functions are identified for an industrial unit-load food produce AS/RS. These functions use real-time statistical interpolations to select the desired storage and retrieval bins. As a result the AS/RS response adapts itself to stochastic perturbations in the system conditions. Experimental evaluations using multiple variance analysis technique and detailed simulations have shown that the proposed dynamic approach is superior to the common industrial control method currently used in those industrial systems characterized by batch arrivals (and retrievals) of the ULs and non-stationary demand patterns, These evaluations further suggest that improved performance is realized with the increase in the informa...