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The Role of Modular Upgradability as a Green Design Strategy

Modular upgradability has been suggested as a strategy for improving environmental performance: as technology improves, it allows for independent replacement of improving subsystems, instead of replacing the entire product. This may extend the useful life of stable subsystems, reducing production and disposal impact. However, this argument ignores the effect of modular upgradability on a firms development and introduction decisions and the environmental impact during the use phase. In this paper, we investigate when modular upgradability leads to lower environmental impact and higher profits. We do so by endogenizing a firms development and introduction decisions and considering the products environmental impact during its entire life cycle. Our results show that although modular upgradability may accelerate the replacement of some subsystems, it delays the replacement of others. We find that modular upgradability can increase the environmental impact for some product categories due to accelerated obsolescence arising from more frequent introduction and replacement. However, we also find that accelerated obsolescence, under some conditions, can actually make modular upgradability greener.

Risk Ownership in Contract Manufacturing

We consider a supply chain where a contract manufacturer (CM) serves a number of original equipment manufacturers (OEMs). Investment into productive resources is made before demand realization, hence the supply chain faces the risk of under-or overinvestment. The CM and OEMs differ in their forecast accuracy and in their resource pooling capabilities, leading to a disparity in their ability to minimize costs due to demand uncertainty. We consider two scenarios in which this risk is borne by the OEM and CM, respectively. We determine which party should bear the risk so that maximum supply chain profits are achieved. We investigate the effectiveness of premium-based schemes in inducing the best party to bear the risk, and conclude that they function well despite information asymmetry when double marginalization is not very high.

Consumer Valuation of Modularly Upgradeable Products

Although product modularity is often advocated as a design strategy in the operations management literature, little is known about how consumers respond to modular products. In this research we undertake several experiments to explore consumer response to modularly upgradeable products in settings featuring technological change. We consider both the initial product choice (between a modularly upgradeable product and an integral one) and the subsequent upgrade decision (replacement of a module versus full product replacement). First, we show that consumers tend to discount the cost savings associated with modular upgrades excessively (insufficiently) when the time between the initial purchase and the upgrade is short (long). This suggests that modular upgradability as a product feature has higher profit potential for slowly rather than rapidly improving products. Second, we observe a preference reversal between the initial purchase and the point of upgrade: At the point of initial purchase, people foresee making a full product replacement in the future, yet, when faced with the actual upgrade decision, they are more likely to revert to modular upgrades. Finally, we discuss and test several pricing and product design strategies that the firm can use to respond to these cognitive biases. This paper was accepted by Kamalini Ramdas, entrepreneurship and innovation.

The Value of Collaborative Forecasting in Supply Chains

Motivated by the mixed evidence concerning the adoption level and value of collaborative forecasting (CF) implementations in retail supply chains, in this paper, we explore the conditions under which CF offers the highest potential. We consider a two-stage supply chain with a single supplier selling its product to consumers through a single retailer. We assume that both the supplier and the retailer can improve the quality of their demand forecasts by making costly forecasting investments to gather and analyze information. First, we consider a noncollaborative model where the supplier and the retailer can invest in forecasting but do not share forecast information. Next, we examine a collaborative forecasting model where the supplier and the retailer combine their information to form a single shared demand forecast. We investigate the value of CF by comparing each partys profits in these scenarios under three contractual forms that are widely used in practice (two variations of the simple wholesale price contract as well as the buyback contract). We show that for a given set of parameters, CF may be Pareto improving for none to all three of the contractual structures, and that the Pareto regions under all three contractual structures can be expressed with a unifying expression that admits an intuitive interpretation. We observe that these regions are limited and explain how they are shaped by the contractual structure, power balance, and relative forecasting capability of the parties. To determine the specific value of collaborative forecasting as a function of different factors, we carry out a numerical analysis and observe the following. First, under noncoordinating contracts, improved information as a result of CF has the added benefit of countering the adverse effects of double marginalization in addition to reducing the cost of supply--demand mismatch. Second, one may expect the value of CF to increase with bargaining power, however this does not hold in general: The value of CF for the newsvendor first increases and then decreases in his bargaining power. Finally, whereas one may expect CF to be more valuable under coordinating contracts, rather than a simple wholesale price contract that is prone to double marginalization, the magnitude of the gain from CF is in many cases higher in the absence of quantity coordination.

Modular Upgradability in Consumer Electronics: Economic and Environmental Implications

Modularly upgradable product designs have been advocated to offer environmental and economic advantages; however, they are not commonly used in the consumer electronics industry. In this article, we investigate the economic and environmental benefits and challenges of modular upgradability for consumer electronics. From an economic point of view, we posit that the limited adoption of modular upgradability in consumer electronics is due to various demand-, technology-, and competition-related issues. From an environmental point of view, we posit that modularly upgradable product designs may not necessarily lead to superior environmental outcomes. To reach meaningful conclusions regarding the environmental benefits of modular upgradability, one needs to understand how product architecture affects demand, production, and consumption patterns, which arise from endogenous consumer and manufacturer choices. It is also important to take into account that modular upgradability may have potentially differentiated effects in the production, consumption, and post-use phases of the lifecycle.

Making the Wait Worthwhile: Experiments on the Effect of Queueing on Consumption

This paper investigates the relationship between waiting time and subsequent purchase decisions. The prior literature assumes that purchase decisions are independent from the waiting time. In contrast, we find that when people spend a longer time waiting in a line, they tend to consume more. We identify mental accounting for sunk costs as the underlying mechanism that drives this behavior; a larger purchase allows customers to offset the long wait suffered. Finally, we explore the effect of managerial practices commonly employed by firms to improve customers’ waiting experience. We find that while these practices indeed result in improved customer experience, they can actually result in lower consumption at the individual level.

In Pursuit of Product Modularity: Impediments and Stimulants:

This article develops a framework, including a 2 × 2 matrix, to help guide firms in deciding when to design their products to be integral, modular-in-production, modular-in-use with a focus on selling “cartridges,” or modular-in-use with a focus on promoting numerous apps. Three key factors are as follows: the level of user heterogeneity, the disparity across components in frequency of updating, and the modularity/integrality penalty.