Lauren Xiaoyuan Lu

Multimarket Facility Network Design with Offshoring Applications

Moving production to low-wage countries may reduce manufacturing costs, but it increases logistics costs and is subject to foreign trade barriers, among others. This paper studies a manufacturers multimarket facility network design problem and investigates the offshoring decision from a network capacity investment perspective. We analyze a firm that manufactures two products to serve two geographically separated markets using a common component and two localized final assemblies. The common part can be transported between the two markets that have different economic and demand characteristics. Two strategic network design questions arise naturally: (1) Should the common part be produced centrally or in two local facilities? (2) If a centralization strategy is adopted, in which market should the facility be located? We present a transportation cost threshold that captures costs, revenues, and demand risks, and below which centralization is optimal. The optimal location of commonality crucially depends on the relative magnitude of price and manufacturing cost differentials but also on demand size and uncertainty. Incorporating scale economies further enlarges the centralizations optimality region.

Incentives for Quality Through Endogenous Routing

We study how rework routing together with wage and piece-rate compensation can strengthen incentives for quality. Traditionally, rework is assigned back to the agent who generates the defect (in a self-routing scheme) or to another agent dedicated to rework (in a dedicated routing scheme). In contrast, a novel cross-routing scheme allocates rework to a parallel agent performing both new jobs and rework. The agent who passes quality inspection or completes rework receives the piece rate paid per job. We compare the incentives of these rework-allocation schemes in a principal-agent model with embedded quality control and routing in a multiclass queueing network. We show that conventional self-routing of rework cannot induce first-best effort. Dedicated routing and cross-routing, however, strengthen incentives for quality by imposing an implicit punishment for quality failure. In addition, cross-routing leads to workload-allocation externalities and a prisoners dilemma, thereby creating the greatest incentives for quality. Firm profitability depends on demand levels, revenues, and quality costs. When the number of agents increases, the incentive effect of cross-routing reduces monotonically and approaches that of dedicated routing.

Capacity Allocation over a Long Horizon: The Return on Turn-and-Earn

We consider a supply chain in which a supplier sells products to multiple retailers. When orders from the retailers exceed the suppliers capacity, she must employ an allocation mechanism to balance supply and demand. In particular, we consider a commonly used allocation scheme in the automobile industry: turn-and-earn, which uses past sales to allocate capacity. In essence, retailers “earn” an allotment of a vehicle after they sell one. In contrast to turn-and-earn, fixed allocation ignores past sales and gives each retailer an equal share of the capacity. Earlier work has demonstrated that turn-and-earn induces more sales in a two-period setting compared to fixed allocation. The question remains unanswered whether turn-and-earn induces similar behaviors over a long horizon when retailers possess private demand information. We construct a dynamic stochastic game of order competition over an infinite horizon to track the order dynamics of the supply chain. We obtain a richer set of equilibrium behaviors than existing models predict. Instead of a symmetric allocation outcome, we observe that sales leadership may arise in equilibrium and that retailers with different past sales adopt distinct ordering strategies to respond to demand uncertainty. Transient sales dynamics suggest that sales leadership may not be persistent and can be eliminated by the occurrence of extremely low demand. This provides a theoretical explanation for several behavioral observations of some U.S. automobile dealers. In addition to the sales-inducing effect, interestingly, turn-and-earn also causes the retailers to absorb local demand variability.

Do Mandatory Overtime Laws Improve Quality? Staffing Decisions and Operational Flexibility of Nursing Homes

During the 2000s, over a dozen U.S. states passed laws that prohibit health care employers from mandating overtime for nurses. Using a nationwide panel dataset from 2004 to 2012, we find that these mandatory overtime laws reduced the service quality of nursing homes, as measured by an increase in deficiency citations. This outcome can be explained by two undesirable changes in the staffing hours of registered nurses: decreased hours of permanent nurses and increased hours of contract nurses per resident day. We observe that the increase in deficiency citations concentrates in the domains of administration and quality of care rather than quality of life, and the severity levels of the increased citations tend to be minor rather than major. We also find that the laws’ negative effect on quality is more severe in nursing homes with higher percentage of Medicare-covered residents. These observations are consistent with the predictions of a stochastic staffing model that incorporates demand uncertainty and operational flexibility. Further, we rule out an alternative hypothesis that the quality decline is induced by an increase in nurse wages.

Design Outsourcing in a Differentiated Product Market: The Role of Bargaining and Scope Economies

In the electronics industry and beyond, original design manufacturers (ODMs) provide a full spectrum of services, ranging from design and development to manufacturing, to original equipment manufacturers (OEMs). Through resource pooling, ODMs benefit from scope economies when designing different products for multiple OEMs. Such design outsourcing practices, however, stir concerns that it may dilute product differentiation and subsequently intensify market competition. To examine the strategic impact of design outsourcing, we develop a game-theoretical model with a single ODM and two competing OEMs. The ODM has two divisions to serve the OEMs separately. The OEMs engage in a differentiated price competition over the Hotelling Line with product locations endogenously chosen by the parties who design the products. A wholesale-price contract is negotiated bilaterally between an ODM division and her OEM customer, and design outsourcing may reduce an OEM’s bargaining power. We compare two scenarios: (1)The ODM divisions establish dedicated resources and act as independent profit maximizers; (2)The ODM divisions cooperate through resource pooling and benefit from scope economies in both design and manufacturing. Our results highlight the role of bargaining in shaping the OEMs’ design sourcing decisions. In particular, whether the OEMs outsource design in equilibrium critically depends on the degree of asymmetry between their bargaining powers vis-a-vis the ODM. With similar bargaining power, the OEMs are more likely to outsource when they become stronger relative to the ODM. With significantly different bargaining power, surprisingly, the strong OEM tends to insource while the weak one tends to outsource. Scope economies may induce the ODM to decrease product differentiation between the products she designs for her OEM customers, and this tendency increases as the OEMs’ bargaining power strengthens. Ceding bargaining power, therefore, can be used by an OEM as an incentive lever to influence the ODM’s design decisions.

Acute Myocardial Infarction in Patients with Paraplegia: Characteristics, Management, and Outcomes

BACKGROUND Cardiovascular disease has become a leading cause of death for patients with paraplegia. Acute myocardial infarction in patients with paraplegia has not been described in the literature. This study investigates clinical features, management strategies, and outcomes of these patients. METHODS Acute myocardial infarction in patients with or without paraplegia was identified in the New York State Inpatient Database between 2007 and 2013. Clinical comorbidities, management strategies and their associated outcomes were compared using propensity score-matching analysis. RESULTS Among 402,569 patients with acute myocardial infarction, 1400 had a concomitant diagnosis of paraplegia. Compared with those without, patients with paraplegia were younger, more likely to be black, and had a higher prevalence of hypertension, anemia, congestive heart failure, coagulopathy, and depression, but a lower prevalence of diabetes, hyperlipidemia, obesity, chronic lung disease, and renal failure. Patients with paraplegia were more likely to receive medical therapy without a diagnostic cardiac catheterization than those without (83.7% vs 64.5%, P < .001). Nine percent of patients with paraplegia received revascularization, which was significantly lower than that without paraplegia. In terms of the clinical outcome, patients with paraplegia had higher in-hospital mortality than those without (22.4% vs 16.8%, P < .001). Among the patients with paraplegia, the subcohort that received revascularization had lower in-hospital mortality (9.5% vs 22.0%, P < .01), had shorter length of stay (13.0 vs 16.9 days, P =.08), and higher hospital charges (

The Strategic Perils of Low Cost Outsourcing

130,079 vs

Supply Chain Contracting under Competition: Bilateral Bargaining vs. Stackelberg

92,125, P < .001) than those without revascularization. Furthermore, the paraplegic subcohort underwent coronary artery bypass grafting that was associated with higher in-hospital mortality (21.7% vs 1.7%, P < .001), longer length of stay (24.8 vs 14.2 days, P < .001), and higher hospital charges (

On the Role of Demand and Strategic Uncertainty in Capacity Investment and Disinvestment Dynamics

231,323 vs

Dynamic Bargaining in a Supply Chain with Asymmetric Demand Information

144,449, P < .01) than subcohort that received percutaneous coronary intervention. CONCLUSIONS Acute myocardial infarction patients with concomitant paraplegia had distinct clinical characteristics and comorbidity profiles; were less likely to receive revascularization therapy; and had higher in-hospital mortality. Acute myocardial infarction patient with paraplegia who underwent revascularization were associated with better clinical outcomes, in particular, those who were treated with percutaneous coronary intervention had significantly lower in-hospital mortality than those treated with coronary artery bypass grafting.