AN APPROACH TO COST—VOLUME—PROFIT ANALYSIS UNDER UNCERTAINTY*

Cost-Volume-Profit analysis is a tool of cost accountants aiding in the choice of an optimal course of action in the solution of a managerial problem. C-V-P is a limited analysis since all the needs of management in determining the optimal strategy are not fulfilled. Factors pertinent to the choice of the optimal strategy under uncertainty are variables, although traditional C-V-P treats these factors as constants. Hence, an approach to C-V-P where pertinent factors necessary for decision making are considered as variables is more desirable than traditional C-V-P. By introducing uncertainty, it is also beneficial to broaden C-V-P to fulfill the following desire of management. Should management choose a course of action based only on its own estimates of the decision parameters or is it advisable to postpone a terminal decision until additional research into the decision parameters is accomplished? Broadened C-V-P solves this problem with the aid of Bayesian Decision Theory for the choice of the optimal course of action in the face of uncertainty.     

FROM BUYER TO INTEGRATOR: THE TRANSFORMATION OF THE SUPPLY‐CHAIN MANAGER IN THE VERTICALLY DISINTEGRATING FIRM

Using case study data, we describe how a large personal computer manufacturer changed its supply‐chain management strategy after outsourcing the majority of its design and manufacturing activities to a network of focused suppliers. To cope with this new structure, the firm created highly skilled generalists, “supply‐chain integrators,” who coordinate product development, marketing, production, and logistics from product concept to delivery across firm boundaries. We particularly focus on the skill‐set that characterizes these integrators. Finally, we use the case evidence, combined with previous theory, to suggest a specific program of research into coordinating product development across disaggregated supply chains.     

POLICIES AND IMPACT: AN ANALYSIS OF VILLAGE‐LEVEL MICROFINANCE INSTITUTIONS

This paper uses variation in policies and institutional characteristics to evaluate the impacts of village‐level microfinance institutions in rural Thailand. To identify impacts, we use policies related to the successful/unsuccessful provision of services as exogenous variation in effective financial intermediation. We find that institutions, particularly those with good policies, can promote asset growth, consumption smoothing and occupational mobility, and can decrease moneylender reliance. Specifically, cash‐lending institutions—production credit groups and especially women's groups—are successful in providing intermediation and its benefits to members, while buffalo banks and rice banks are not. The policies identified as important to intermediation and benefits: the provision of savings services, especially pledged savings accounts; emergency services; and training and advice. Surprisingly, much publicized policies such as joint liability, default consequences, or repayment frequency had no measured impacts. (JEL: 012, 016)     

CORPORATE DOWNSIZING TO REBUILD TEAM SPIRIT: HOW COSTLY VOTING CAN FOSTER COOPERATION

We propose a new mechanism to achieve coordination through voting, for which we discuss a number of real‐life applications. Among them, the mechanism provides for a new theory for downsizing in organizations. A crisis may lead to a decrease in the willingness to cooperate in an organization, and therefore to a bad equilibrium. A consensual downsizing episode may signal credibly that survivors are willing to cooperate, and thus, it may be optimal and efficiency‐enhancing (for the individuals remaining in the organization), as the empirical evidence suggests. A variation of the same mechanism leads to “efficient” upsizing. (JEL: C70, D70, M50)     

RANKING THE SCHOOLS: HOW SCHOOL‐QUALITY INFORMATION AFFECTS SCHOOL CHOICE IN THE NETHERLANDS

This paper analyzes whether information about the quality of high schools published in a national newspaper affects school choice in the Netherlands. We find that negative (positive) school‐quality scores decrease (increase) the number of first‐year students who choose a school after the year of publication. These effects are only large for the college‐preparatory track, such that a school receiving the most positive score for its most academic track sees 16–18 more first‐year students enroll. We find that parents respond to the most recent and most prominently displayed information. The effects of information about school quality do not seem to be greater in regions with larger relevant newspaper circulation, suggesting that direct exposure to news about school quality does not explain the response to this information.     

COMMENTS ON “COST INCREASES DUE TO DEMAND UNCERTAINTY IN MRP LOT SIZING”: A VERIFICATION OF ORDERING PROBABILITIES

In a recent article in this journal, De Bodt and Van Wassenhove [1] presented analytic derivations related to lot-sizing behavior under uncertainty. Although their models appear to have been verified in the aggregate by simulation experiments, detailed justifications for several of the derivations are missing. The present paper looks at De Bodt and Van Wassenhove's analysis and provides verifications of (and corrections to) the ordering probabilities and order cycles used by the authors to estimate the cost effects of forecast errors in the particular operating environment studied. The probabilities simulated in this study also generate additional insight into the “system nervousness” caused by lot-sizing and forecast errors.     

PLANT‐LEVEL ENVIRONMENTAL MANAGEMENT ORIENTATION: THE INFLUENCE OF MANAGEMENT VIEWS AND PLANT CHARACTERISTICS

As customers, the public and other stakeholders are increasingly demanding that manufacturing firms improve their approach to environmental management, some plants have moved to develop an orientation that is increasingly proactive. Synthesizing earlier research, environmental management orientation is defined here to include system analysis and planning, organizational responsibility, and management controls. The relationship between a proactive orientation and two sets of internal factors, specifically the personal views of plant managers and plant‐specific characteristics, was tested using survey data from the furniture industry. The production outlook for the plant was critical, with a favorable outlook fostering a more proactive environmental management orientation. After controlling for plant‐specific factors, personal views also were influential; an increasing emphasis on short‐term economic value was related to a more reactive plant‐level orientation. Thus senior corporate management can foster strong plant‐level environmental management through a more balanced emphasis on economic and ethical values and continued investment in a plant's long‐term viability.     

FROM SHAME TO GAME IN ONE HUNDRED YEARS: AN ECONOMIC MODEL OF THE RISE IN PREMARITAL SEX AND ITS DE‐STIGMATIZATION

Societies socialize children about sex. This is done in the presence of peer‐group effects, which may encourage undesirable behavior. Parents want the best for their children. Still, they weigh the marginal gains from socializing their children against its costs. Churches and states may stigmatize sex, both because of a concern about the welfare of their flocks and the need to control the cost of charity associated with out‐of‐wedlock births. Modern contraceptives have profoundly affected the calculus for instilling sexual mores. As contraception improves there is less need for parents, churches, and states to inculcate sexual mores. Technology affects culture.     

COLLABORATION AND EVALUATION IN THE SUPPLY CHAIN: THE IMPACT ON PLANT‐LEVEL ENVIRONMENTAL INVESTMENT

Manufacturing organizations can potentially improve environmental management both by increasing the level of investment in environmental technologies and by shifting that investment away from pollution control and toward pollution prevention. However, managers must not only consider their own manufacturing operations in isolation, but also those of others along the supply chain. This paper explores two dimensions of supply chain activities—collaboration and evaluation—that might be leveraged by plant managers to improve environmental management in their own plant. The linkages with suppliers and customers were assessed. Both customer‐ and plant‐initiated collaboration were found to have a significant effect on the level and form of investment in environmental technologies for a sample of Canadian plants. Of greatest importance, as customer‐initiated collaborative activities increased, plant‐level investment in environmental management was increasingly allocated toward pollution prevention. In contrast, only very limited evidence was found that evaluative activities influenced environmental investment.     

A MECHANISM DESIGN APPROACH TO CLIMATE‐CHANGE AGREEMENTS

We take a mechanism design perspective to investigate how environmental agreements should account for multilateral externalities, incentive compatibility, and voluntary participation by sovereign countries. The optimal mechanism involves a tradeoff between a free rider problem in the effort provision of participating countries and the necessity of inducing countries to ratify the agreement. This mechanism can be approximated by a simple menu with attractive implementation and robustness properties. Limits on enforcement and commitment might nevertheless hinder the performance of this menu, making the “business as usual” scenario more likely.     

REDUCTION IN THE LONG‐TERM UNEMPLOYMENT OF THE ELDERLY: A SUCCESS STORY FROM FINLAND

In several European countries the elderly unemployed are allowed to collect unemployment benefits up to a certain age limit, after which they can retire via some early retirement scheme. In Finland the eligibility age of persons benefiting from this kind of scheme was raised from 53 to 55 in 1997. We consider layoff risks, unemployment durations, and the exit states before and after the reform. Since the reform the group aged 53–54 has had a lower risk of unemployment, shorter unemployment durations, and higher exit rates to employment, and it is almost indistinguishable from the group aged 50–52. We estimate that the amount of unemployment benefits saved due to the reform is close to $100 million for each age cohort turning 53. (JEL: J64, J26, C14, C41)     

THE EFFECT OF CENTRAL EXIT EXAMINATIONS ON STUDENT ACHIEVEMENT: QUASI‐EXPERIMENTAL EVIDENCE FROM TIMSS GERMANY

This paper makes use of the regional variation in schooling legislation within the German secondary education system to estimate the causal effect of central exit examinations on student performance. We propose a difference‐in‐differences framework that exploits the quasi‐experimental nature of the German TIMSS middle school sample and discuss its identifying assumptions. The estimates show that students in federal states with central exit examinations clearly outperform students in federal states without such examinations. However, only part of this difference can be attributed to the existence of the central exit examinations themselves. Our results suggest that central examinations increase student achievement by the equivalent of about one‐third of a school year. (JEL: D02, H42, I28)     

New Product Design under Channel Acceptance: Brick‐and‐Mortar,Online‐Exclusive,or Brick‐and‐Click

In recent years, an increasing number of brick‐and‐mortar retailers have entered into the new brick‐and‐click era. Within this context, when a manufacturer presents a new product offering to a retailer, the ultimate decision is often made by the retailer regarding (1) whether to carry the new product, and (2) the channel outlet the product will be carried in (i.e., in‐store only, online‐exclusive, or brick‐and‐click). In response to this trend, we examine how a manufacturer may use product design to influence a dual‐channel retailer's outlet designation decision. This is the first study to investigate a manufacturer's optimal product design strategy when a brick‐and‐mortar retailer expands online. We demonstrate that, to induce the retailer to carry a new product both offline and online, it may not always be optimal for the manufacturer to enhance product quality (compared with when the retailer only operates offline). With the online store addition, the retailer may also be incentivized to adjust his participation criterion to a level less than what is determined by his outside option.     

REPLY TO: “ON THE SENSITIVITY OF BRAND-CHOICE SIMULATIONS TO ATTRIBUTE IMPORTANCE WEIGHTS”

Our reply to Curry, Louviere, and Augustine's critique of our earlier paper focuses on differences in motivation between our research and theirs. Our interest in the problem relates to the possible incorporation of self-explicated evaluations in conjoint data collection methods; subsequent to the appearance of our original paper, we have developed hybrid models that combine elements of self-explicated (compositional) and conjoint (decompositional) data collection procedures. As far as we can surmise from their critique, Curry, Louviere, and Augustine are concerned with much broader strategic issues relating share of choices in the consumer population to changes in the shape of attribute weight distributions, shape of the Pareto tradeoff boundary, and so on.     

Managing White‐Collar Work: An Operations‐Oriented Survey

Although white‐collar work is of vast importance to the economy, the operations management (OM) literature has focused largely on traditional blue‐collar work. In an effort to stimulate more OM research into the design, control, and management of white‐collar work systems, this paper provides a systematic review of disparate streams of research relevant to understanding white‐collar work from an operations perspective. Our review classifies research according to its relevance to white‐collar work at individual, team, and organizational levels. By examining the literature in the context of this framework, we identify gaps in our understanding of white‐collar work that suggest promising research directions.     

Assemble‐to‐Order Inventory Management via Stochastic Programming: Chained BOMs and the M‐System

We study an inventory management mechanism that uses two stochastic programs (SPs), the customary one‐period assemble‐to‐order (ATO) model and its relaxation, to conceive control policies for dynamic ATO systems. We introduce a class of ATO systems, those that possess what we call a “chained BOM.” We prove that having a chained BOM is a sufficient condition for both SPs to be convex in the first‐stage decision variables. We show by examples the necessity of the condition. For ATO systems with a chained BOM, our result implies that the optimal integer solutions of the SPs can be found efficiently, and thus expedites the calculation of control parameters. The M system is a representative chained BOM system with two components and three products. We show that in this special case, the SPs can be solved as a one‐stage optimization problem. The allocation policy can also be reduced to simple, intuitive instructions, of which there are four distinct sets, one for each of four different parameter regions. We highlight the need for component reservation in one of these four regions. Our numerical studies demonstrate that achieving asymptotic optimality represents a significant advantage of the SP‐based approach over alternative approaches. Our numerical comparisons also show that outside of the asymptotic regime, the SP‐based approach has a commanding lead over the alternative policies. Our findings indicate that the SP‐based approach is a promising inventory management strategy that warrants further development for more general systems and practical implementations.     

Sequence Matters: Shelf‐Space Allocation under Dynamic Customer‐Driven Substitution

Customers who face a stockout situation often decide to purchase a different product in the same category. We analyze the resulting dynamic substitution problem in a retail environment, where customers serve themselves from the store shelves, such that the sequence of customer arrivals affects how scarce products are allocated to customers. We consider a setting with constrained shelf space, and we study how a retailer should optimally allocate such space between substitute products. We characterize environments where the sequence of customer arrivals can have a substantial impact on profitability.     

NERJIT: Using Net Requirement Data in Kanban‐Controlled Jumbled‐Flow Shops

The bold lines that have separated the application of specific production planning and control techniques to specific production systems are being blurred by continuous advances in production technologies and innovative operational procedures. Oral communication among dispatchers and production units has given way to electronic communication between production planners and these units by continuous progress in information technologies. Current production literature alludes to the idea that, collectively, these advances have paved the way for application of Just‐In‐Time (JIT) production concepts, which were originally developed for mass production systems, in intermittent production systems. But this literature does not actually consider the possibility. This article presents a modification to JIT procedures to make them more suitable for jumbled‐flow shops. This article suggests providing real‐time information about net‐requirements for each product to each work center operator for setting production priorities at each work center. Simulation experiments conducted for this study show that using Net‐Requirements in JIT (NERJIT) reduces customer wait time by 45–60% while reducing inventory slightly. The analysis of work centers’ input and output stock‐point inventories shows that using the information about net‐requirements results in production of items that are in current demand. NERJIT results in smaller input stock‐point inventory and availability of products with higher priority in the output stock‐points of work centers.     

Part‐time Work as Practising Resistance: The Power of Counter‐arguments

Contributing to a Foucauldian perspective on ‘discursive resistance’, this paper theorizes how part‐time workers struggle to construct a valid position in the rhetorical interplay between norm‐strengthening arguments and norm‐contesting counter‐arguments. It is thereby suggested that both the reproductive and the subversive forces of resistance may very well coexist within the everyday manoeuvres of world‐making. The analysis of these rhetorical interplays in 21 interviews shows how arguments and counter‐arguments produce full‐time work as the dominant discourse versus part‐time work as a legitimate alternative to it. Analysing in detail the effects of four rhetorical interplays, this study shows that, while two of them leave unchallenged the basic assumptions of the dominant full‐time discourse and hence tend instead to reify the dominant discourse, two other interplays succeed in contesting the dominant discourse and establishing part‐time work as a valid alternative. The authors argue that the two competing dynamics of challenging and reifying the dominant are not mutually exclusive, but do in fact coexist.