Wendell G. Gilland

Mitigating Supply Risk: Dual Sourcing or Process Improvement?

Surveys suggest that supply chain risk is a growing issue for executives and that supplier reliability is of particular concern. A common mitigation strategy is for the buying firm to expend effort improving the reliability of its supply base. We explore a model in which a firm can source from multiple suppliers and/or exert effort to improve supplier reliability. For both random capacity and random yield types of supply uncertainty, we propose a model of process improvement in which improvement efforts (if successful) increase supplier reliability in the sense that the delivered quantity (for any given order quantity) is stochastically larger after improvement. We characterize the optimal procurement quantities and improvement efforts and generate managerial insights. For random capacity, improvement is increasingly favored over dual sourcing as the supplier cost heterogeneity increases, but dual sourcing is favored over improvement if the supplier reliability heterogeneity is high. In the random yield model, increasing cost heterogeneity can reduce the attractiveness of improvement, and improvement can be favored over dual sourcing if the reliability heterogeneity is high. A combined strategy (improvement and dual sourcing) can provide significant value if suppliers are very unreliable and/or capacity is low relative to demand.

Competitive advantage through take-back of used products

Abstract Motivated by a recent antitrust ruling against Hill–Rom, one of the two dominant American suppliers of hospital beds, we develop a stylized model to investigate the consequences of used product take-back on firms, industry and customers. Our findings suggest that by taking back and reselling refurbished products, a manufacturer can increase both profit margins and sales––to the detriment of a non-interfering competitor. In our model, customers are always better off under product take-back, but it depends on the degree of competition, whether firms use the benefits of take-back primarily to increase their margins or to pass them on to the customers by lowering their prices. The first firm to offer take-back, in some cases, can deter its competitors from following this profitable strategy, especially if it has an existing advantage in terms of lower production cost or higher market share. Contrary to the claim of Hill–Roms competitor, we find a “legitimate business justification” for Hill–Roms reduction of new product prices.

Achieving competitive capabilities in e-services

Abstract What implications does the Internet have for service operations strategy? How can business performance of e-service companies be improved in todays knowledge-based economy? These research questions are the subject of this paper. We propose a model that links the e-service companys knowledge-based competencies with their competitive capabilities. Drawing from the current literature, our analysis suggests that services that strategically build a portfolio of knowledge-based competencies, namely human capital, structural capital, and absorptive capacity have more operations-based options, than their counterparts who are less apt to invest. We assume that the combinative capabilities of service quality, delivery, flexibility, and cost are determined by the investment in intellectual capital. Arguably, with the advent of the Internet, different operating models (e.g., bricks-and-mortar, clicks-and-mortar, or pure dot-com) have different strategic imperatives in terms of knowledge-based competencies. Thus, the new e-operations paradigm can be viewed as a configuration of knowledge-based competencies and capabilities.

Coordinating Traditional and Internet Supply Chains

The Internet has provided traditional manufacturers and retailers a new avenue to conduct their business. On one hand, utilizing the Internet channel potentially could increase the market for the firm and, due to synergies involved, reduce the costs of operations. On the other hand, a new channel threatens existing channel relationships through possible cannibalization. This chapter explores recent research on coordination opportunities that arise for firms that participate in both traditional channels as well as internet channels. Three areas of coordination are discussed: procurement, pricing, and the backend operations of distribution and fulfillment.

Volume Flexibility in Services: The Costs and Benefits of Flexible Labor Resources

Organizations can create volume flexibility---the ability to increase capacity up or down to meet demand for a single service---through the use of flexible labor resources e.g., part-time and temporary workers, as compared to full-time workers. Although organizations are increasingly using these resources, the relationship between flexible labor resources and financial performance has not been examined empirically in the service setting. We use two years of archival data from 445 stores of a large retailer to study this relationship. We hypothesize and find that increasing the labor mix of temporary or part-time workers shows an inverted U-shaped relationship with sales and profit while temporary labor mix has a U-shaped relationship with expenses. Thus, although flexible labor resources can create volume flexibility for a firm along multiple dimensions, it is possible to have too much of a good thing. This paper was accepted by Serguei Netessine, operations management.

Sequential and Simultaneous Decision Making for Optimizing Health Care Resource Flexibilities

Health care administrators commonly employ two types of resource flexibilities (demand upgrades and staffing flexibility) to efficiently coordinate two critical internal resources, nursing staff and beds, and an external resource (contract nurses) to satisfy stochastic patient demand. Under demand upgrades, when beds are unavailable for patients in a less acute unit, patients are upgraded to a more acute unit if space is available in that unit. Under staffing flexibility, nurses cross-trained to work in more than one unit are used in addition to dedicated and contract nurses. Resource decisions (beds and staffing) can be made at a single point in time (simultaneous decision making) or at different points in time (sequential decision making). In this article, we address the following questions: for each flexibility configuration, under sequential and simultaneous decision making, what is the optimal resource level required to meet stochastic demand at minimum cost? Is one type of flexibility (e.g., demand upgrades) better than the other type of flexibility (e.g., staffing flexibility)? We use two-stage stochastic programming to find optimal resource levels for two nonhomogeneous hospital units that face stochastic demand following a continuous, general distribution. We conduct a full-factorial numerical experiment and find that the benefit of using staffing flexibility on average is greater than the benefit of using demand upgrades. However, the two types of flexibilities have a positive interaction effect and they complement each other. The type of flexibility and decision timing has an independent effect on system performance (capacity and staffing costs). The benefits of cross-training can be largely realized even if beds and staffing levels have been determined prior to the establishment of a cross-training initiative.

Impact of productivity on cross-training configurations and optimal staffing decisions in hospitals

Cross-training of nursing staff has been used in hospitals to reduce labor cost, provide scheduling flexibility, and meet patient demand effectively. However, cross-trained nurses may not be as productive as regular nurses in carrying out their tasks because of a new work environment and unfamiliar protocols in the new unit. This leads to the research question: What is the impact of productivity on optimal staffing decisions (both regular and cross-trained) in a two-unit and multi-unit system. We investigate the effect of mean demand, cross-training cost, contract nurse cost, and productivity, on a two-unit, full-flexibility configuration and a three-unit, partial flexibility and chaining (minimal complete chain) configurations under centralized and decentralized decision making. Under centralized decision making, the optimal staffing and cross-training levels are determined simultaneously, while under decentralized decision making, the optimal staffing levels are determined without any knowledge of future cross-training programs. We use two-stage stochastic programming to derive closed form equations and determine the optimal number of cross-trained nurses for two units facing stochastic demand following general, continuous distributions. We find that there exists a productivity level (threshold) beyond which the optimal number of cross-trained nurses declines, as fewer cross-trained nurses are sufficient to obtain the benefit of staffing flexibility. When we account for productivity variations, chaining configuration provides on average 1.20% cost savings over partial flexibility configuration, while centralized decision making averages 1.13% cost savings over decentralized decision making.

Patient access in plastic surgery: an operational and financial analysis of service-based interventions to improve ambulatory throughput in an academic surgery practice.

IntroductionInefficient patient throughput in a surgery practice can result in extended new patient backlogs, excessively long cycle times in the outpatient clinics, poor patient satisfaction, decreased physician productivity, and loss of potential revenue. This project assesses the efficacy of multiple throughput interventions in an academic, plastic surgery practice at a public university. MethodsWe implemented a Patient Access and Efficiency (PAcE) initiative, funded and sponsored by our health care system, to improve patient throughput in the outpatient surgery clinic. Interventions included: (1) creation of a multidisciplinary team, led by a project redesign manager, that met weekly; (2) definition of goals, metrics, and target outcomes; 3) revision of clinic templates to reflect actual demand; 4) working down patient backlog through group visits; 5) booking new patients across entire practice; 6) assigning a physician’s assistant to the preoperative clinic; and 7) designating a central scheduler to coordinate flow of information. Main outcome measures included: patient satisfaction using Press-Ganey surveys; complaints reported to patient relations; time to third available appointment; size of patient backlog; monthly clinic volumes with utilization rates and supply/demand curves; “chaos” rate (cancellations plus reschedules, divided by supply, within 48 hours of booked clinic date); patient cycle times with bottleneck analysis; physician productivity measured by work Relative Value Units (wRVUs); and downstream financial effects on billing, collection, accounts receivable (A/R), and payer mix. We collected, managed, and analyzed the data prospectively, comparing the pre-PAcE period (6 months) with the PAcE period (6 months). ResultsThe PAcE initiative resulted in multiple improvements across the entire plastic surgery practice. Patient satisfaction increased only slightly from 88.5% to 90.0%, but the quarterly number of complaints notably declined from 17 to 9. Time to third available new patient appointment dropped from 52 to 38 days, whereas the same metric for a preoperative appointment plunged from 46 to 16 days. The size of the new patient backlog fell from 169 to 110 patients, and total monthly clinic volume climbed from 574 to 766 patients. Our “chaos” rate dropped from 12.3% to 1.8%. Mean patient cycle time in the clinic decreased dramatically from 127 to 44 minutes. Mean monthly productivity for the practice increased from 2479 to 2702 RVUs. Although our collection rate did not change, days in A/R dropped from 66 to 57 days. Mean monthly charges increased from U.S.

Effective Sequencing Rules for Closed Manufacturing Networks

535,213 to U.S.

Analysis of optimal and nearly optimal sequencing policies for a closed queueing network

583,193, and mean monthly collections improved from U.S.