Nicola Costantino

Subcontracting in commercial and residential construction: an empirical investigation

Some twenty years ago Robert Eccles argued for the theoretical existence of the quasifirm, a semi-integrated form of production in the construction industry, following a field study of home building firms in the USA. The study was aimed at substantiating some aspects of Williamsons transaction cost theory. The present work has similar intents, and illustrates the results of two recent field studies of homebuilders and commercial contractors, and the specific features of their subcontracting practice. Given the difficulty of an effective measurement of transaction costs in construction, Williamsons concept of atmosphere is suggested to explain the different approaches observed in subcontracting.

Revenue guarantee in public-private partnerships: a fair risk allocation model

Public-private partnerships (PPPs) are adopted throughout the world for delivering public infrastructure. Despite the attractiveness of the PPP structure, its implementation has not been without trouble due to multiple uncertainties embedded with PPP projects. Private investors often require some mitigation of these risks through government support. One of the most common forms of government support is minimum revenue guarantee (MRG). A real option-based model is developed that uses a new mechanism for setting the revenue guarantee level secured by the government, which balances the private sector’s profitability needs and the public sector’s fiscal management interests and uses the concept of fairness for structuring MRGs. The model uses Monte Carlo simulation to take into account the uncertainty. The model is applied to the projected 1 kilometre long ‘Camionale di Bari’ toll road that will link the port of Bari (located in Puglia, Southern Italy) with the existing road network without affecting the urban traffic. It was found that government support is often needed to make the project attractive to private investors and that the developed model can be, for both public and private sectors, a valid tool for defining the fair value of the minimum amount of revenue secured by the government.

Risk Management in Motorway PPP Projects: Empirical-based Guidelines

Abstract This paper deals with the topic of risk management in Public Private Partnership (PPP). The analysis of the related literature reveals that risks must be analyzed and managed on a context-specific approach, and that there is a lack of a comprehensive study on the appropriate risk mitigation strategies for each risk embedded in PPP projects. Focusing on the transport sector, based on the results of a Delphi survey, the paper provides guidelines for both public and private parties in defining a list of significant risks in PPP motorway projects, and identifying for them both the effective allocation and the suitable mitigation strategies. Results of the Delphi survey have been compared with the common practices on risk management applied in eight real motorway PPP projects.

A fuzzy programming approach for the strategic design of distribution networks

The paper addresses the optimal design of the last branch of the supply chain, i.e., the Distribution Network (DN). We extend a deterministic optimization model previously proposed by the authors, using fuzzy numbers and fuzzy logic to take into account uncertainty in the DN model and in the DN design. Hence, a procedure employing digraph modeling and fuzzy mixed integer linear programming is presented to select the optimal DN configuration. To show the method effectiveness, the optimization model is applied to a case study.

Strategic design and multi-objective optimisation of distribution networks based on genetic algorithms

The paper addresses the optimal design of distribution networks (DNs). Considering a distributed system composed of stages connected by material links labelled with suitable performance indices, a procedure employing multi-objective genetic algorithms (MOGAs) is presented to select the optimal DN configuration. The paper enhances a deterministic procedure for DN strategic configuration by employing MOGACOP, a real-valued chromosome MOGA that can be applied to the case of constrained nonlinear function. The main MOGA characteristics are the presence of three populations: two reference sets of individuals satisfying all constraints, namely, a set of Pareto optimal individuals (frontier population) and a set of individuals covering the previous population (archive population), together with a search set which, on the contrary, includes individuals that are allowed to not satisfy all constraints (laboratory population). MOGACOP allows solving the DN design nonlinear problem, which exhibits a multi-objective function that varies linearly only with some variables and nonlinearly with the remaining variables. The proposed MOGA application allows finding a Pareto frontier of optimal solutions, which is compared with the frontier obtained by solving the same problem with Integer Linear Programming (ILP), where piecewise constant contributions are linearly approximated. The two found curves represent, respectively, the upper and the lower limit of the region including the real Pareto curve. Both the genetic optimisation and the ILP models are applied under structural constraints to a case study describing the distribution chain of a large enterprise of southern Italy producing consumer goods.

A decision support system framework for purchasing management in supply chains

Purpose – This paper aims to propose the framework of a decision support system (DSS) to select the optimal number of suppliers that are candidate to join a supply chain network.Design/methodology/approach – The DSS bases the decision on the cost evaluation of the transaction among the buyer and the potentially available suppliers by way of a Monte Carlo approach. In particular, the presented DSS includes a statistical module and the DSS core. The former module estimates (in a probabilistic way) the exchange performance indices, i.e. total cost of the transaction, purchasing price and additional costs of purchasing, while the latter module implements the transaction evolution making use of a simulation model. The DSS is tested by way of a case study, namely the supply of a customized product by a general contractor in the construction industry.Findings – The obtained DSS results are validated with the actual data of the purchasing, and confirm the underlying model suitability and the DSS effectiveness for...

Subcontracting practices in USA homebuilding—an empirical verification of Eccles's findings 20 years later ☆

Abstract The activities of the construction industry can be interpreted as a network of transactions, or contracts. According to Williamsons framework, the analysis of transaction costs explains why the exchange of goods and services is governed by a specific government structure, ranging from “hierarchy” to “market”. The study is based on two recent field studies of homebuilders and commercial (non-residential) contractors, which follow the analytical methodology of Eccless investigation of homebuilders’ subcontracting practice. In this investigation, Eccles argued for the theoretical existence of the “quasifirm”, a stable organizational unit between the homebuilder and specialty subcontractors. Before illustrating the authors’ findings, the paper first presents a review of Eccless study of homebuilders, including a verification of its results. The paper concludes with a discussion of the limitations of the presented studies.

An integrated approach for warehouse analysis and optimization

The paper focuses on the analysis and optimization of production warehouses.We present an approach integrating several tools for implementing lean in the warehouse operation.The approach integrates the Unified Modeling Language, Value Stream Mapping and the Genba Shikumi methodology.An Italian interior design producer is employed as a case study.The application of the approach to the company leads to an innovative proposal for the warehouse automation and optimization. The paper focuses on the analysis and optimization of production warehouses, proposing a novel approach to reduce inefficiencies which employs three lean manufacturing tools in an integrated and iterative framework. The proposed approach integrates the Unified Modeling Language (UML) - providing a detailed description of the warehouse logistics - the Value Stream Mapping (VSM) tool - identifying non-value adding activities - and a mathematical formulation of the so-called Genba Shikumi philosophy - ranking such system anomalies and assessing how they affect the warehouse. The subsequent reapplication of the VSM produces a complete picture of the reengineered warehouse, and using the UML tool allows describing in detail the updated system. By applying the presented methodology to the warehouse of an Italian interior design producer, we show that it represents a useful tool to systematically and dynamically improve the warehouse management. Indeed, the application of the approach to the company leads to an innovative proposal for the warehouse analysis and optimization: a warehouse management system that leads to increased profitability and quality as well as to reduced errors.

A real options-based model to supporting risk allocation in price cap regulation approach for public utilities

Price cap regulation of public utilities is based on an incentive mechanism to prevent monopolistic infrastructure firms from charging excessive prices. The challenge of this regulation mechanism is to define incentives able to avoid abnormal profits of firms and simultaneously increase quality of service and promote investment projects. A new risk-based approach to support the definition of the fair incentive mechanism as between the regulator, the community and the firm is proposed. The methodology is based on the combined use of real options theory and Monte Carlo simulation. The methodology is then applied to the Italian water market where the regulator adopts a ‘hybrid’ price cap mechanism that gives monopolistic firms the incentive to implement investment projects for reducing the actual infrastructural gap in the water supply system. The results reveal the capability of the proposed model to support public decision makers at the negotiation stage to define the incentive scheme and investment plan able to increase the quality of service allowing a fair risk allocation among parties.

A Nash equilibrium simulation model for the competitiveness evaluation of the auction based day ahead electricity market

Abstract This paper presents a simulation model based on the Nash equilibrium notion for the auction based day ahead electricity generation market. The presented model enhances a previous formalism proposed in the related literature by employing empirical data distributions of the market clearing price as registered by the market authority (e.g. the Independent System Operator). The model is effective when power suppliers with different generation capacities are considered, differently from the starting model that unrealistically assumes equal capacities. The proposed approach aims at evaluating the electricity market competitiveness with regard to the bidder strategies in order to prevent their anticompetitive actions. The framework is applied to a real data set regarding the Italian electricity market to enlighten its effectiveness in different scenarios, varying the number and capacity of participating bidders. The model can be employed as a basis for a decision support tool both for market participants (to define their optimal bidding strategy) and regulators (to avoid collusive strategies).