The Influence of Cost and Quality Priorities on the Propensity to Outsource Production*

Outsourcing of production has escalated over the past decade due to unprecedented competition and worldwide access to low‐cost labor markets. This article examines how cost and quality priorities—two key attributes of manufacturing strategy—influence a manufacturer's propensity to outsource. By doing so, we bridge the existing gap between research on manufacturing strategy and firm boundaries. We develop a theory‐based model that links a manufacturer's cost and quality priorities to its plans to outsource production. Our empirical analyses, based on survey data obtained from 867 manufacturing business units, control for firm‐specific factors previously shown to impact outsourcing, including asset specificity, uncertainty, and current capabilities in cost and quality. We found that the competitive priority placed on cost played an integral role in sourcing decisions, while, surprisingly, conformance quality priorities did not. The cost result is consistent with our expectations and observations in practice. The significant effect of cost priority on outsourcing shows that any theory of firm boundaries that fails to consider competitive priorities is incomplete. The finding regarding quality, which was counter to our expectations, may partially explain why there is an emergence of so many nonconforming products associated with outsourcing. Taken together, our results provide theoretical insights for future research into how manufacturing managers can improve their decision making on outsourcing production.     

Managing Uncertainty: The Tropospheric Ozone Challenge

Although it has been over two decades since Congress passed the Clean Air Act of 1968, ozone in the lower atmosphere remains a serious environmental concern in the United States. Significant scientific progress has been made over the past three decades, yet many important uncertainties remain unresolved. How to manage in a situation characterized by these uncertainties is a major challenge that must be overcome to develop an effective ozone abatement strategy. In this paper, we describe a decision framework for evaluation of alternative ozone abatement strategies. The framework, which embodies two major components-a simulation module and a decision module–incorporates uncertainty in a dynamic decision-making process and enables evaluation of NOx and VOC controls on a systematic basis. We demonstrate the application of the framework through an illustrative analysis to provide insight into the value of flexible ozone abatement strategies in reducing the total cost of achieving air-quality goals and the tradeoffs between the timing and the accuracy of additional information.     

ON-LINE QUALITY MANAGEMENT: INTEGRATION OF PRODUCT INSPECTION AND PROCESS CONTROL

A growing recognition that quality management is an important factor in defining a firm's competitive position has led to renewed attention to this function and has resulted in implementation of elaborate systems for on-line quality control comprising product inspection and process control. Traditionally, these functions have been treated independently, with very little interaction. In this paper we examine, in detail, a scheme that integrates the two functions, and we demonstrate that such an approach can result in significant cost savings. The motivation for this work comes from our experience in a wafer fabrication facility that suggested that exchange of quality information between different stages of production could result in significant performance improvements. To illustrate this approach, we consider a specific environment characterized by a single-stage continuous production process whose status is monitored by an X̄ control chart. We assume that quality-related costs may be described as a function of the process output. This is analogous to Taguchi's quality loss function and may be interpreted as a generalization of conventional classification of process output as either acceptable or defective units. The integrative scheme essentially relies on utilization of the process status information (based on process control) in making product inspection decisions. For this system we derive a cost model and develop a solution procedure to determine optimal decision parameters. Limited computational results indicate that the scheme has significant potential for reducing quality-related costs.     

考虑故障停机的生产控制与维修计划联合决策模型

通过生产控制与维修计划协同决策,降低生产成本。首先描述生产过程,分析各项费用。其次,建立了考虑生产过程失控、故障率和故障停时间的生产过程控制、生产计划优化和维修管理联合优化决策的模型。通过模型求解,联合制定出生产过程检查策略、生产计划（经济生产批量、生产批次）以及维修计划（PM间隔期）,实现单位时间内总费用最低的目标。再次,案例研究,分析生产过程失控、故障率和故障停机时间对于经济生产批量、生产过程检查策略和生产系统维修计划的影响。该模型从理论上解决了生产过程控制、生产计划优化和维修管理联合优化决策难题,对于指导企业制定生产计划和生产系统的检修计划,进而提高产品质量、降低生产成本、确保准时交货都具有指导意义和实用价值。     

风险质检行为下的模糊生产-库存决策

本文研究在风险质检行为下需求与生产率具有模糊属性的由一个制造商与一个零售商构成的生产-库存问题。在假设制造商生产的产品存在质量缺陷,零售商在质检过程中存在质检风险的基础上,分别建立了需求模糊下的生产-库存总成本模型,需求与生产率模糊下的总成本模型,运用符号距离法进行了逆模糊化处理,将模糊化的生产-库存总成本转化为确定性成本。证明了两类情形下的总成本均是关于最优订购量与最优缺货量的联合凸函数。数值分析结果表明：随着期望缺陷率的增加,最优订购量增加,最优缺货量减少,最优成本增加,且最优成本增加的速度越来越快。一类质检风险增大引起总成本增加,二类质检风险增大引起总成本减少。最优订购策略对质检一类风险敏感,对质检二类风险不敏感。     

Learning from the Piper Alpha Accident: A Postmortem Analysis of Technical and Organizational Factors

The accident that occurred on board the offshore platform Piper Alpha in July 1988 killed 167 people and cost billions of dollars in property damage. It was caused by a massive fire, which was not the result of an unpredictable "act of God" but of an accumulation of errors and questionable decisions. Most of them were rooted in the organization, its structure, procedures, and culture. This paper analyzes the accident scenario using the risk analysis framework, determines which human decision and actions influenced the occurrence of the basic events, and then identifies the organizational roots of these decisions and actions. These organizational factors are generalizable to other industries and engineering systems. They include flaws in the design guidelines and design practices (e.g., tight physical couplings or insufficient redundancies), misguided priorities in the management of the tradeoff between productivity and safety, mistakes in the management of the personnel on board, and errors of judgment in the process by which financial pressures are applied on the production sector (i.e., the oil companies' definition of profit centers) resulting in deficiencies in inspection and maintenance operations. This analytical approach allows identification of risk management measures that go beyond the purely technical (e.g., add redundancies to a safety system) and also include improvements of management practices.     

Linking IT Applications with Manufacturing Strategy: An Intelligent Decision Support System Approach

Research has indicated the importance of matching Information Technology (IT) applications or manufacturing systems with the competitive strategy of a company. Selection of the right type of IT application is, however, a challenging task. When a company with a given dominant process structure emphasizes two or more competitive priorities, such as quality, product flexibility, etc., an unaided manager faces a complex decision problem in choosing from alternative IT applications available in the areas of product design through distribution. In this paper, we develop an Intelligent Decision Support System (IDSS) to assist managers with assessment of the relative importance of competitive priorities in their organization, evaluation of the fit between the competitive priorities and their dominant process structure, and identification of the IT applications that are consistent with both the competitive priorities and the process structure. The IDSS is comprised of an interactive user interface, a knowledge database, a decision model, and a Knowledge-Based System (KBS) that was developed using the 1st Class KBS shell. Validation of the system illustrates that its performance is as good as the human expert, and it has the potential to facilitate effective and swift decision making in the selection of appropriate IT applications that best match an organization's manufacturing strategy. The choice and use of the right type of IT application should provide a company with a competitive edge.     

Interorganizational Collaborative Forecasting and Replenishment Systems and Supply Chain Implications

Collaborative Forecasting and Replenishment (CFAR) is a new interorganizational system that enables retailers and manufacturers to forecast demand and schedule production jointly. The capabilities of CFAR exceed those of the traditional EDI because CFAR allows exchange of complex decision support models and manufacturer/retailer strategies. The proponents of CFAR claim that the fastest way for retailers and manufacturers to slash inventory costs and product shortages is by coordinating their decisions. The impact of CFAR on the supply chain using a model consisting of a manufacturer selling its product through two independent identical retailers is analyzed. The model assumes that the manufacturer doesn't face capacity constraints, the demand is stationary, and retailer prices are constant over time; the shortages are backordered at the manufacturer and retailers to isolate the effects of information sharing in CFAR. The most significant findings relate to the increase in the cost incurred by the nonparticipant in CFAR, the increase in the manufacturer's cost of serving the nonparticipant if the participant can obtain delivery guarantees in return for demand information sharing, and the incentives of the players to move towards universal retailer participation in CFAR. The findings are explained using the risk structure faced by the players in the supply chain. The managerial implications of the impact of CFAR on the supply chain structure are also discussed.     

两级供应链产品质量控制契约模型分析

基于博弈论和委托代理理论,研究在两级供应链中如何进行质量控制契约设计的问题。建立生产商和购买商的期望收益函数模型,生产商对其生产过程投资水平进行决策并确定其产品质量预防水平;购买商进行质量评价决策并确定其产品质量检验水平。生产商存在降低其生产过程投资水平的道德风险问题,在生产过程中将"削减投资",购买商为激励生产商提高其生产过程投资水平将支付"信息租金"的成本。购买商在进行产品质量检验决策时,存在夸大产品质量缺陷率的道德风险问题,在产品质量检验过程中将"过度检验"。运用最优化原理,求解生产商的最优生产过程投资水平、产品质量预防水平和价格折扣额与购买商的最优质量检验水平和外部损失分摊比例,并进行了算例分析,结果表明:当生产商提高其生产过程投资水平时,其质量预防水平将显著增加,购买商的质量检验水平将显著下降;随着购买商质量检验水平的提高,生产商所提供的价格折扣额先增大后减少,生产商所承担的外部损失分摊比例将会下降,其期望收益增加,购买商的期望收益将会减少,供应链联合期望收益将呈现"倒U"型,求解了期望收益的最大值及各契约参数的值,结果证明所提出的质量控制契约模型是可行的。     

A Simulation of Partial Information Use in Decision Making: Implications for DSS Design

Information matrices are often the output produced by a decision support system. These matrices are a common method for expressing a decision situation under different decision-making scenarios. The decisions involved in designing a decision support system to generate the information matrix are important and involve several cost and benefit components. A designer needs guidance in making effective design decisions in this context. Such guidance can be provided by considering the relationships among specific design decisions, costs, and benefits. The general objective of this study is to provide a comprehensive framework for this purpose. This study is the first to develop and present a comprehensive cost-benefit framework for evaluating design decisions for a variety of scenarios. The specific objective of this research is to provide guidance regarding the number of available information dimensions to incorporate in a computer-based decision aid. Simulation experiments are conducted with a completely specified model based on the cost-benefit framework (including needed assumptions) to evaluate how many information dimensions to include for a specific information matrix size to achieve a balance between information use costs and decision quality. Based upon extensive simulation analyses for a hypothetical decision maker, the practical guideline found for designers is to include only the top half of the relevant information dimensions in any specific decision support system. Over a large number of repeating choice decisions, the savings in cognitive effort and information gathering costs clearly offset relatively minor losses in decision quality.     

The Design of a Knowledge-Based Decision Support System to Support the Information Analyst in Determining Requirements

Decision support system (DSS) researchers and designers continue to look for unstructured organizational tasks where there is a critical need for intelligent computer-based support. One such decision task is information requirements determination. Requirements determination is recognized as the most crucial phase of the systems development life cycle. Unfortunately, most methodologies and CASE tools focus only on how to specify the requirements once they are determined. There is very little computer support for the process of determining requirements. This paper discusses the conceptual design and development of a knowledge-based DSS to support information analysts in the critical decision task of determining requirements for the design of effective information systems. The expert modeling support system has the expertise to assist the analyst in studying the organization as a whole and in modeling the system under study in the context of the overall organization's goals and needs. The focus of the paper is on the problems associated with building the knowledge base component of the intelligent decision support system. A prototype implementation of the system is described.     

Sourcing Decisions with Competitive Suppliers and Imperfect Information

Manufacturers often must choose between outsourcing and producing internally. This choice is complex and influenced by a variety of factors, including the costs and capabilities of the potential suppliers. In addition, if the manufacturer outsources, he must design the sourcing process. We study the manufacturer's outsourcing decision, with a focus on the impact of the sourcing process on that decision. We consider a setting in which the manufacturer has imperfect information regarding the suppliers' costs and capabilities, and we assume that the manufacturer uses a two‐stage sourcing process. The first stage is the qualification stage, in which the manufacturer seeks to reduce the uncertainty regarding the suppliers' capabilities. The second stage is the supplier selection stage, in which the manufacturer selects among the qualified suppliers on the basis of price. We first characterize the optimal design of the two‐stage process, and then consider the outsourcing decision. We demonstrate several trade‐offs. Vertical integration enables the manufacturer to reduce uncertainty and extract all of the profits of production. However, outsourcing enables the manufacturer to take advantage of the (potentially) lower costs and higher capabilities of the suppliers, particularly if competition between suppliers can be encouraged. We find that the manufacturer is more likely to vertically integrate when the warranty cost and the cost of exerting effort during qualification are large, and when there is significant uncertainty regarding the suppliers' capabilities. The manufacturer is more likely to outsource when the suppliers' costs (capabilities) are low (high), and when the number of suppliers is large.     

A value of information framework for assessing the trade-offs associated with uncertainty,duration, and cost of chemical toxicity testing

A number of investigators have explored the use of value of information (VOI) analysis to evaluate alternative information collection procedures in diverse decision-making contexts. This paper presents an analytic framework for determining the value of toxicity information used in risk-based decision making. The framework is specifically designed to explore the trade-offs between cost, timeliness, and uncertainty reduction associated with different toxicity-testing methodologies. The use of the proposed framework is demonstrated by two illustrative applications which, although based on simplified assumptions, show the insights that can be obtained through the use of VOI analysis. Specifically, these results suggest that timeliness of information collection has a significant impact on estimates of the VOI of chemical toxicity tests, even in the presence of smaller reductions in uncertainty. The framework introduces the concept of the expected value of delayed sample information, as an extension to the usual expected value of sample information, to accommodate the reductions in value resulting from delayed decision making. Our analysis also suggests that lower cost and higher throughput testing also may be beneficial in terms of public health benefits by increasing the number of substances that can be evaluated within a given budget. When the relative value is expressed in terms of return-on-investment per testing strategy, the differences can be substantial.     

Cost/quality tradeoffs for control procedures in information systems

An analytical framework is presented to study the cost/benefit tradeoffs of alternative internal control scenarios designed to ensure quality of outputs from information systems. A mathematical model is used to evaluate the impact that various alternatives have on system performance and cost. The model can be used to compare the benefits gained from enhanced processing with those arising from more effective internal control procedures. Model variables under the control of system designers include placement and effectiveness of internal control procedures, cost and quality of processing activities, both manual and computerized, and cost and quality of correction procedures. The model incorporates a penalty cost incurred by failure to detect and correct errors. The analytical process is illustrated through application to a specific information system.     

The Effects of Information Overload on Software Project Risk Assessment*

Managers are responsible for providing effective information technology governance of the software development process. Ineffective governance leads to serious resource misallocations and negative consequences concerning Sarbanes‐Oxley compliance. In order for managers to make informed decisions about software development projects, they often need more information than is available through normal information channels, that is, they need an in‐depth review of the at‐risk project. Such in‐depth reviews, however, are costly. Hence, accurate identification of at‐risk projects for in‐depth review is critical to management's ability to govern. This research considers how two factors, information load and time pressure, affect the quality of the project‐selection process. We examine quality by observing the decision strategies involved and then relating these strategies to subsequent decision making. An experiment was conducted with experienced information systems auditors using a combination of policy‐capturing and computerized process‐tracing techniques. The participants in our study cope with information overload by accelerating their decision‐making process and adopting noncompensatory decision processes. Contrary to prior research, our process‐tracing analysis suggests that participants rarely filter information, thus implying that decision makers are unable to process all the information. Coping by resorting to noncompensatory strategies did not decrease decision quality unless combined with accelerated information processing. Participants also increase their weight on the software project risk factors that they repeatedly access and that they view for longer periods of time. The theoretical contributions and practical implications regarding what actions managers can take to reduce the negative impact of information overload are discussed.     

Alternate Routing Strategies in Batch Manufacturing: An Evaluation

Batch manufacturing firms are experiencing significant changes because of technological developments in work center design, such as flexible manufacturing systems (FMS) and planning/control tools like computer-aided process planning (CAPP). These new developments provide production managers with some solutions to a number of complex problems. For example, numerical-controlled (NC) machine center installations are effective in providing quality parts because of tight tolerance specifications built into the equipment. However, these highly efficient centers create bottlenecks that constrain shop throughput, since production planners tend to rely too much on them. To help improve manufacturing planning, we introduce an important element to the batch production scheduling component of CAPP's mission—evaluating possible alternate routes. Production scheduling encompasses job route selection as well as machine center assignment (loading), job releasing, and setting due dates. In this paper, three routing strategies requiring different levels of shop floor information are tested and evaluated using computer simulation. Shop performance is measured by total cost and traditional measures of job flow time, lateness, and tardiness.     

A goal programming model for paper recycling system

The conflict between economic optimization and environmental protection has received wide attention in recent research programs for waste management system planning. This has also resulted in a set of new waste management goals in reverse logistics system planning. The purpose of this analysis is to formulate a mixed integer goal programming (MIGP) model to assist in proper management of the paper recycling logistics system. The model studies the inter-relationship between multiple objectives (with changing priorities) of a recycled paper distribution network. The objectives considered are reduction in reverse logistics cost; product quality improvement through increased segregation at the source; and environmental benefits through increased wastepaper recovery. The proposed model also assists in determining the facility location, route and flow of different varieties of recyclable wastepaper in the multi-item, multi-echelon and multi-facility decision making framework. The use of the model has been illustrated through a problem of paper recycling in India.     

MEASURING MASTER PRODUCTION SCHEDULE STABILITY UNDER ROLLING PLANNING HORIZONS

Maintaining a stable master production schedule (MPS) is difficult for many firms, especially when material requirements planning is used to manage production operations. This paper is concerned with the problem of measuring MPS stability, and the impact on stability of three important decision variables in managing the MPS within a rolling-horizon framework in a make-to-stock environment: the method used to freeze the MPS, the proportion of the MPS frozen, and the length of the planning horizon for the MPS. Simulation experiments conducted to determine the impact of these decision variables, as well as other important product demand and cost characteristics, on MPS stability are reported. The results indicate MPS stability can be influenced by managerial action directed toward management of the MPS as well as changes in important product cost and requirements characteristics.     

Economic Models for Single Sample Acceptance Sampling Plans,No Inspection,and 100 Percent Inspection

Once a process is stabilized using control charts, it is necessary to determine whether this process is capable of producing die desired quality, as determined by the specifications, without the use of some additional inspection procedure such as 100 percent inspection or acceptance sampling. One common method of making this determination is the use of process capability ratios. However, this approach may lead to erroneous decisions due to the omission of economic information. This paper attempts to remedy this situation by developing economic models to examine the profitability of different inspection policies. These models employ the quadratic loss function to represent the economic cost of quality from external failures, which is commonly omitted or overlooked. Moreover, assuming a normal distribution for the quality characteristic allows the use of simplified formulas that are provided. Thus the calculations can be made using standard normal tables and a calculator. Additionally, these economic models may be used to determine if additional inspection procedures should be reinstated if the quality of the process was to decline, to make capital budgeting decisions involving new equipment that produces parts of a higher quality, and to determine the preferred 100 percent inspection plan or acceptance sampling plan.     

Decision Processes for Developing Strategic Applications of Information Systems: A Contingency Approach*

Strategic applications of information systems (IS) are considered by IS researchers to be determined by contextual factors such as environmental uncertainty, and influenced by attributes of the processes preceding them, such as planning and top management support. For better management of the process leading to these applications, it is essential to understand the relationship between process attributes and contextual factors. Utilizing a contingency approach, this article takes a step toward such an understanding. Based on successful strategic IS applications from 81 large companies, it examines the relationship between the context of these applications and the decision-making process leading to them. The results indicate that the external environment is related to whether a rational or political decision-making process is used. The IS function seems to influence the use of the decision process implied by IS researchers, one in which the top management champions the strategic application, while the IS managers contribute by conducting in-depth analysis. However, the organization structure was not related to any decision process attribute. The implications of these findings for future research and practice are also discussed.