Ravi Subramanian

Key Factors in the Market for Remanufactured Products

Measures to extend the economic lives of products---such as remanufacturing carried out by closed-loop supply chains---are receiving increased attention because of various economic and regulatory factors. In this paper, we examine drivers of price differentials between new and remanufactured products using data on purchases made on eBay. Our analysis shows that seller reputation significantly explains the price differentials between new and remanufactured products. We also find that products remanufactured by original equipment manufacturers or their authorized factories are purchased at relatively higher prices than products remanufactured by third parties. However, in the presence of these reputation signals (seller reputation and remanufacturer identity), we find that stronger warranties are not significantly associated with higher prices paid for remanufactured products. Our work contributes to the closed-loop supply chain research stream in operations management by empirically examining market factors that have not been studied before.

Operational Compliance Levers, Environmental Performance, and Firm Performance Under Cap and Trade Regulation

Cap and trade programs impose limits on industry emissions but offer individual firms the flexibility to choose among different operational levers toward compliance, including inputs, process changes, and the use of allowances to account for emissions. In this paper, we examine the relationships among (1) levers for compliance (at-source pollution prevention, end-of-pipe pollution control, and the use of allowances); (2) environmental performance; and (3) firm market performance for the context of stringent cap and trade regulation with allowance grandfathering (i.e., the allocation of allowances for free). To investigate these relationships, we use data on publicly traded utility firms operating coal-fired generating units regulated by the U.S. Acid Rain Program from three principal sources: the U.S. Energy Information Administration, the U.S. Environmental Protection Agency, and the Compustat database. Our results indicate a significant relationship between better environmental performance and lower firm market performance over at least a three-year period. From a regulatory perspective, our results show a negative association between allowance grandfathering and firm environmental performance. Overall, by explicitly considering the context of stringent regulation, we find a counter-example to the view that better environmental performance generally associates with better economic performance.

An Approach to Integrating Environmental Considerations within Managerial Decision-Making

Recent environmental trends, including (1) an expansion of existing command and control directives, (2) the introduction of market-based policy instruments, and (3) the adoption of extended producer responsibility, have created a need for new tools to help managerial decision-making. To address this need, we develop a nonlinear mathematical programming model from a profit-maximizing firms perspective, which can be tailored as a decision-support tool for firms facing environmental goals and constraints. We typify our approach using the specific context of diesel engine manufacturing and remanufacturing. Our model constructs are based on detailed interviews with top managers from two leading competitors in the medium and heavy-duty diesel engine industry. The approach allows the incorporation of traditional operations planning considerations — in particular, capacity, production, and inventory — together with environmental considerations that range from product design through production to product end of life. A current hurdle to implementing such a model is the availability of input data. We therefore highlight the need not only to involve all departments within businesses but also for industrial ecologists and business managers to work together to implement meaningful decision models that are based on accurate and timely data and can have positive economic and environmental impact.

The Impacts of Sharing Responsibility for Product Recovery across the Supply Chain

Extended Producer Responsibility (EPR) programs typically hold the producer - a single actor defined by the regulator - responsible for the environmental impacts of end-of-life products. This is despite emphasis on the need to involve all actors in the supply chain in order to best achieve the aims of EPR. In this paper, we examine the important economic and environmental implications of sharing EPR program costs. We use a steady-state, two-echelon supply chain model to determine the impacts of product collection and recycling mandates on the incentive to recycle, and resulting profits in the integrated and decentralized supply chains. For the decentralized supply chain, we demonstrate how the sharing of EPR program costs between the echelons can improve total supply chain profit and suggest a contract menu that can Pareto-improve profits in the decentralized supply chain. To examine both the economic and environmental performance associated with the sharing of program costs, we propose a social welfare construct that includes supply chain profit, consumer surplus, and the externalities associated with virgin material extraction, product consumption, and disposal of non-recycled products. Using a numerical example, we discuss how EPR program cost sharing may or may not improve social welfare. The results of this paper are of value to firms either anticipating or subject to product recovery legislation, and to social planners that attempt to balance the economic and environmental impacts and ensure the fairness of such legislation.

When Do Appointments of Corporate Sustainability Executives Affect Shareholder Value

Over the last two decades, firms have been appointing corporate sustainability executives (CSEs) to be part of their top management teams. Although there is a vast literature on sustainable practices and their relationships with various measures of firm performance, little is known about the nature of the empirical link between CSE appointments and financial performance. We add to the understanding of this link by estimating the stock market reactions to a sample of 115 announcements of CSE appointments made by firms during the period 2000–2018. Our findings using event study methodology, followed by regression analyses, suggest that although the stock market reaction to CSE appointments is not significantly different from zero, the stock market reacts more, or less positively under certain firm- and industry-specific conditions. We find that the stock market reaction is more positive in instances where the announcing firms faced a prior adverse sustainability-related incident, and less positive when announcing firms operate in industries that face relatively greater levels of regulatory sanctions. Also, we find that the stock market reaction is more positive when firms announce CSE appointments with focused as compared to broad responsibilities. Additionally, we find that CSE appointments are associated with subsequent improvements in operating performance – partly driven by a decrease in total costs and partly by an increase in sales. Overall, our findings support the strategy of appointing CSEs to top management teams and enable executives and stakeholders to more deeply understand the shareholder value and operating performance effects of appointing CSEs.

Incorporating Life-Cycle Economic and Environmental Factors in Managerial Decision-Making

Recent environmental trends, including (1) an expansion of existing command and control directives, (2) the introduction of market-based policy instruments, and (3) the adoption of extended producer responsibility, have created a need for new tools to help managerial decision-making. To address this need, we develop a nonlinear mathematical programming model from a profit-maximizing firm’s perspective, which can be tailored as a decision-support tool for firms facing environmental goals and constraints. We typify our approach using the specific context of diesel engine manufacturing and remanufacturing. The approach allows the incorporation of traditional operations planning considerations—in particular, capacity, production, and inventory—together with environmental considerations that range from product design through production to product end of life. A current hurdle to implementing such a model is the availability of input data. We therefore highlight the need to involve all departments within businesses and for industrial ecologists and business managers to work together to implement meaningful decision models that are based on accurate and timely data and can have positive economic and environmental impact.

Factoring environmental concerns in supply chain decision making

Recent regulatory and market-driven environmental pressures have fundamentally impacted decision making throughout supply chain systems, from raw material sourcing through processing, use and post-use – including the logistical activities in between. In this paper, we focus on three factors – legislative, economic and social – that have introduced environment-related complexities into supply chain decisions. For each of these factors, we provide examples of how the accompanying complexities can be characterised within decision models in the form of parameters, objectives or constraints. The contribution of this work lies in highlighting that conventional supply chain decision models have to be recast and solved differently to accommodate legislative, economic and social pressures related to the life-cycle environmental impacts of products or technologies.

Are Hazardous Substance Rankings Effective? An Empirical Investigation of Changing Assessments of the Relative Hazards of Chemicals and Emissions Reductions

Whether information dissemination about chemical hazards drives managers at facilities to undertake corresponding environmental actions, remains an open question that has not been adequately examined in the literature. We fill this gap in the literature by empirically investigating reductions in chemical emissions by facilities in relation to changes in the assessed hazard levels of chemicals evidenced in periodically-updated public information. We also examine the moderating effects of operational leanness – an attribute that prior studies have shown to be associated with better environmental performance – in our setting wherein the assessed hazard levels of chemicals change over time. We draw data from four US sources – the Substance Priority List from the Agency for Toxic Substances and Disease Registry, the Toxics Release Inventory from the EPA, the National Establishment Time-Series, and Compustat. We employ a panel model with facility-chemical- and time-fixed effects. We find that public information dissemination on chemical hazards is effective, as indicated by the significant association between increases in the assessed hazard levels of chemicals and greater subsequent emissions reductions. Specifically, we find that facilities reduce emissions by an additional 4.28% on average and their use of source reduction increases by 3.07% on average when the relative assessed hazard level of a chemical increases compared to when it decreases. We find that, overall, leaner facilities outperform less lean facilities with respect to emissions reductions. However, when the assessed hazard level increases, less lean facilities increase their emissions reductions more than leaner facilities. Our findings provide insights for managers prioritizing environmental actions, including the extent of emissions reductions achievable by practicing lean. Our results can also be leveraged by governmental/non-governmental organizations to anticipate responses to informational updates on chemical hazards, depending on characteristics of the affected facilities.

Market Value Implications of Voluntary Corporate Environmental Initiatives (CEIs)

Although firms engage in a variety of practices to manage their internal environmental performance as well as those of their supply chains, and they often promote those efforts to concerned stakeholders, it is not well understood how those voluntary corporate environmental initiatives (CEIs) affect the financial bottom line, and the market value of the firm. In this chapter, we discuss the various types of environmental initiatives that are reported in the business press, and how they can potentially impact firm costs and revenues. We provide empirical evidence of the relationships between CEIs and the market value of the firm.