Shantanu Bhattacharya

Closed-Loop Supply Chain Models with Product Remanufacturing

The importance of remanufacturing used products into new ones has been widely recognized in the literature and in practice. In this paper, we address the problem of choosing the appropriate reverse channel structure for the collection of used products from customers. Specifically, we consider a manufacturer who has three options for collecting such products: (1) she can collect them herself directly from the customers, (2) she can provide suitable incentives to an existing retailer (who already has a distribution channel) to induce the collection, or (3) she can subcontract the collection activity to a third party. Based on our observations in the industry, we model the three options described above as decentralized decision-making systems with the manufacturer being the Stackelberg leader. When considering decentralized channels, we find that ceteris paribus, the agent, who is closer to the customer (i.e., the retailer), is the most effective undertaker of product collection activity for the manufacturer. In addition, we show that simple coordination mechanisms can be designed such that the collection effort of the retailer and the supply chain profits are attained at the same level as in a centrally coordinated system.

The effect of remanufacturing on procurement decisions for resellers in secondary markets

The role of remanufacturing as a competitive tool for firms has been reflected in a number of studies to show that remanufacturing can reduce the unit cost of production by reusing components. However, the fact that remanufacturing can be used as a strategic tool for serving secondary markets as well has not been acknowledged in the literature. In this paper, we study the use of remanufacturing as a tool to serve secondary markets. Specifically, we model the case of a reseller who procures used products based on an older generation of technology from an advanced market and then uses one of two options: (a) she can either resell a small fraction of these used products in a developing market where the technology is acceptable, or (b) she can invest in the remanufacturing of these products and then sell them in the developing market at a higher price. The main result of the paper is that using remanufacturing to serve secondary markets reduces the number of units procured from the advanced market for the reseller. In addition, we show based on certain cost structures that the reseller is always better off if she uses remanufacturing to a certain extent.

An Innovative Public–Private Partnership: New Approach to Development

Abstract This paper is focused on the development of new services by nonprofit organizations for groups of companies within a particular sector in industry. It is based on a case study of an actual implementation by United Nations Industrial Development Organization (UNIDO) in collaboration with a number of other organizations to upgrade the capabilities of automotive component suppliers in India, to enable them to supply to world-class manufacturers. We draw upon the traditional literature available on new product and service development for firms introducing new products and services for maximizing profit, and contrast those approaches with the approach adopted by nonprofit organizations. We also carry out a comparative analysis between UNIDOs partnership model and the traditional model to highlight the innovation aspects and advantages of the former from the developmental perspective. An attempt is also made to illustrate the pre-formation, formation and post-formation challenges faced by the new cooperation model that envisages the participation of public and private partners.

Operationalizing technology improvements in product development decision-making

Abstract Achieving competitive advantage and price premiums in many technology-based markets requires the incorporation of current technology in new products. To do so, firms in hyper-competitive environments increasingly plan and design their products concurrent with the independent development and validation of underlying technologies. Simultaneous validation of a core technology has important implications for a company’s product positioning and launch sequence decisions making these traditional marketing decisions relevant to operations managers. Prior research has shown that to minimize cannibalization in the absence of such improvements in technology, a firm should not launch low-end products before high-end products. However, concurrent evolution of technology can make it desirable and even necessary to introduce low-end products before high-end products. This is because in technology-based industries, improvements in technology delay the introduction of a high-end product, and a firm must trade-off the benefit of launching the low-end product earlier (greater discounted profits) against the cost of cannibalization of high-end product sales. High-end product cannibalization can be further reduced by offering the customer an option to upgrade from the low-end to high-end product, with important implications for the firm’s product positioning and introduction sequence decisions. Based on our study in the high technology industry, we model the product positioning and introduction sequence decisions under the simultaneous evolution of technology. Our analysis indicates that it may be optimal in a variety of circumstances for a firm to launch products in an increasing order of performance, even in the absence of network externalities. Besides presenting analytical results for product positioning and profit from different introduction sequences, the paper also makes a contribution to managerial practice by providing insights in the form of a conceptual framework.

A comparison of milestone-based and buyout options contracts for coordinating R&D partnerships

We analyze optimal contractual arrangements in a bilateral research and development (R&D) partnership between a risk-averse provider that conducts early-stage research followed by a regulatory verification stage and a risk-neutral client that performs late-stage development activities, including production, distribution, and marketing. The problem is formulated as a sequential investment game with the client as the principal, where the investments are observable but not verifiable. The model captures the inherent incentive alignment problems of double-sided moral hazard, risk aversion, and holdup. We compare the efficacy of milestone-based options contracts and buyout options contracts from the clients perspective and identify conditions under which they attain the first-best outcome for the client. We find that milestone-based options contracts always attain the first-best outcome for the client when the provider has some bargaining power in renegotiation and identify their applicability to different R&...

Joint Product Improvement by Client and Customer Support Center: The Role of Gain-Share Contracts in Coordination

We study the role of different contract types in coordinating the joint product improvement effort of a client and a customer support center. The customer support centers costly efforts at joint product improvement include transcribing and analyzing customer feedback, analyzing market trends, and investing in product design. Yet this cooperative role must be adequately incentivized by the client, since it could lead to fewer service requests and hence lower revenues for the customer support center. We model this problem as a sequential game with double-sided moral hazard in a principal-agent framework in which the client is the principal. We follow the contracting literature in modeling the effort of the customer support center, which is the first mover, as either unobservable or observable; in either case, the efforts are unverifiable and so cannot be contracted on directly. We show that it is optimal for the client to offer the customer support center a linear gain-share contract when efforts are unobservable, even though it can yield only the second-best solution for the client. We also show that the cost-plus contracts widely used in practice do not obtain the optimal solution. However, we demonstrate that if efforts are observable then a gain-share and cost-plus options-based contract is optimal and will also yield the first-best solution. Our research provides a systematic theoretical framework that accounts for the prevalence of gain-share contracts in the IT industrys joint improvement efforts, and it provides guiding principles for understanding the increased role for customer support centers in product improvement.

Single Sourcing Versus Multisourcing: The Role of Effort Interdependence, Metric-Outcome Misalignment, and Incentive Design

We compare two strategies for outsourcing the development of information services projects: multisourcing and single-sourcing. We model these sourcing strategies when incentive contracts are based on a verifiable project metric that may or may not be aligned with the project outcome. We also model the interdependence of client and vendor efforts so that the verifiable metric may or may not be separable in these efforts. When the verifiable metric and the project outcome are aligned, single-sourcing performs better than multisourcing if the client and vendor efforts are interdependent, and as well as multisourcing if the efforts are independent. When the metric and outcome are misaligned: (i) multisourcing performs better than single-sourcing if the client effort is independent of the vendor efforts; (ii) the choice of sourcing strategy is nuanced based on the trade-off between the degree of misalignment and moral hazard if the client and vendor efforts are interdependent.

Installed base management versus selling in monopolistic and competitive environments

Abstract This paper compares the policy of selling a product to that of installed base management, in which the manufacturer leases the product to consumers, and bundles repair and maintenance services along with the product. We compare the two policies in a monopolistic setting when a firm uses either one of the policies, and when both policies are used by a single firm. We then compare the policies under competition first when two firms use identical products, and when two firms use vertically differentiated products. Our findings indicate that the selling option dominates the installed base option in a monopolistic environment, even for significant values of remanufacturing savings from the installed base policy. In a competitive environment, if two firms use identical products, we find that the two firms use only differentiated pure strategies (where one firm uses installed base management and the other uses selling), or the outcome is a mixed equilibrium, where each firm uses each pure strategy with a certain probability. We find that the firm using the installed base management policy in the duopoly with identical products performs better than the firm using the selling policy. In a competitive market where both firms use vertically differentiated products, we find that both firms can use both mechanisms of installed base management and selling in equilibrium. However, we find that the profits from the installed base segments of the two firms are higher than the profits from the selling segments. Our results indicate that the selling policy performs better in a monopolistic environment while the installed base policy performs better in a competitive environment.

Contracting for New Product Development

In this chapter, we outline the findings of the research on contracting in new product development from the perspective of mitigating agency issues in both the internal and external contexts to the firm. The literature has studied the role of contracting in aligning the incentives of both internal stakeholders and external partners, and the nature of decisions being made by the principal. A common set of agency issues studied in the literature is the use of contracts for coordinating single or multiple efforts to attain higher profits for the supply chain, and the division of profits between the different partners in the supply chain. Additionally, the mitigation of information asymmetry effects, the decision rights for exercising contracts, group and individual incentives, different contracting levers and monitoring of agent efforts have also been considered. Finally, simultaneous versus sequential decision-making, the use of informal contracts in addition to formal contracts, and the impact of risk profiles have been studied. We also identify critical gaps in the literature and propose directions for future research.