Browsing by Subject "Behavioral operations"

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    Buyback versus revenue sharing contracts: the supplier's perspective
    (2013-07) Zhang, Yinghao
    Prior theory claims that buyback and revenue sharing contracts achieve equivalent channel-coordinating solutions when applied in a single supplier-buyer setting. This suggests that a supplier should be indifferent in choosing which contract to offer. However, the sequence and magnitude of costs and revenues (i.e., losses and gains) vary significantly between the two contracts, suggesting the supplier's preference of contract type, and associated contract parameter values, will vary with her level of loss aversion. We study this phenomenon from the supplier's perspective in three stages. First, we investigate whether human suppliers are indeed indifferent between these two equivalent contracts. Using a controlled laboratory experiment, with human subjects taking on the role of supplier having to choose between the two contracts, we find that contract preferences change with the ratio of overage and underage costs for the channel (i.e., the newsvendor critical ratio). In particular, a buyback contract is preferred for products with low critical ratio while revenue sharing is preferred for products with high critical ratio. We show that these results are consistent with the behavioral tendency of loss aversion and are more significant for subjects that exhibit higher loss aversion tendencies in an out of context task. Second, we examine differences in the performance of buyback and revenue sharing contracts when suppliers have the authority to set contract parameters. We find that the contract frame influences the way parameters are set and the critical ratio again plays an important role. More specifically, we find that in a high critical ratio environment revenue sharing contracts are more profitable for the supplier than buyback contracts while there is little difference in performance between the two contracts in a low critical ratio environment. We also find that adding prospective accounting tendencies into the behavioral model provides a stronger predictor of behavior in this setting than loss aversion alone. Finally, we discuss how a retailer's behavioral tendencies may influence the supplier's contract decisions and contract performance. We find that the existence of bounded rationality and rejection risk at the retailer level can significantly reduce the supplier's expected profit but do not influence the relative performance of buyback versus revenue sharing. However, judgment biases (due to loss aversion and prospective accounting) may increase the supplier's expected profit in some situations and the supplier is more profitable under buyback contracts. This research can help inform supply managers on what types of contracts should be used in different critical ratio environments.
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    Sourcing and Capacity Investment Decisions in Supply Chain Risk Management
    (2021-08) Yu, Junhao
    Risks are prevalent in supply chains. While managers are familiar with common risks such as supply disruption and demand uncertainty, new risks are constantly emerging. These emerging risks may differ from the existing ones in important ways that alter the decision setting, requiring managers to adopt new risk management strategies. Using old strategies to respond to these emerging risks may be ineffective or even counterproductive. Through three studies, this dissertation examines how sourcing and capacity investment decisions are influenced by two categories of emerging risks—supplier-induced risks and regulatory risks. Studies 1 and 2 use analytical models and behavioral experiments to compare how buyers’ optimal and actual sourcing strategies differ under supplier-induced responsibility violation risks and traditional supply disruption risks. We document significant and robust differences in buyers’ ordering behaviors across the two risk types and further disentangle the effects of risk structure and context characteristics that drive the differences. Our additional analysis on the performance implications of different sourcing strategies shows the promise of sole-sourcing from the risk-free supplier and identifies cognitive and affective behavioral factors associated with adopting this strategy. Study 3 uses analytical models and a numerical study to examine a vaccine manufacturer’s optimal capacity investment strategy across domestic and overseas markets when faced with a potential risk emanating from regulations that restrict vaccine exports from the domestic market. We characterize how a regulatory mandate may shift the manufacturer’s overall capacity commitment strategy (produce in one location vs. both) as well as the associated capacity levels in each location. We further assess the impact of these changes on service level and public health outcomes at both locations as well as globally. A general theme of this dissertation is to investigate when diversification, a common strategy used to handle risks, is warranted in these problem domains from normative and behavioral perspectives.