The Impact of Limited Supply on a Firm's Bundling Strategy

A firm's two‐product bundling decision is examined when the supply of one product is limited and consumer valuations are normally distSteckeributed. The firm can choose to sell products separately and/or through a bundle. We find that the impact of limited supply on a firm's bundling decision depends on the correlation between the consumer valuations of the two products as well as the symmetry level of the two products in terms of their attractiveness (how much they are valued by consumers). When the valuation correlation is high and the symmetry level of the two products is low, limited supply can drive bundling. When the valuation correlation is low or the symmetry level is high, limited supply can drive no bundling. When the attractiveness of both products are low or the valuation correlation is very high, limited supply has no impact on a firm's bundling decision: The firm should not bundle for all supply levels. This study offers a new driver for product bundling: the limited supply of a product. The existing bundling literature suggests that a firm should bundle symmetric products that have a low consumer valuation correlation, when bundling is driven by consumer valuation heterogeneity reduction. In contrast, when bundling is driven by limited supply, a firm should bundle asymmetric products with a high consumer valuation correlation. The benefit of supply‐driven bundling depends on the severity of supply limitation. When supply limitation is moderate, bundling creates value by expanding the market of the less attractive product. When supply limitation is severe, bundling enables a firm to extract a higher margin from the less attractive product.     

Emerging Market Penetration,Inventory Supply,and Financial Performance

Realizing potential benefits from emerging market penetration requires firms to address inherent supply chain challenges. A major challenge is for firms to manage costly inventories to address demand and supply risks in emerging markets. However, emerging market penetration may offer opportunities for firms to lower inventory levels, reduce costs, and improve operating performance. Using data for 482 manufacturing firms over the 5‐year period, 2003–2007, obtained from the COMPUSTAT Industrial and Segment Databases, this article examines the relationships between emerging market penetration, inventory supply, and financial performance. Our results show that a multinational firm's sales penetration into emerging markets is associated with fewer days of inventory supply and improved financial performance. As emerging market penetration may allow firms to operate with lower inventory supply, the positive effect from emerging market penetration, such as labor cost reductions, may be enhanced due to inventory cost savings.     

The Effect of Product Development Restructuring on Shareholder Value

This article examines the effect of product development restructuring (PDR) on shareholder value. The results are based on a sample of 165 announcements made during 2002–2011. PDR announcements are associated with an economically and statistically significant positive stock market reaction. Over a two‐day period (the day of the announcement and the day preceding the announcement), the mean (median) market reaction is 1.63% (0.87%). The market reaction is generally positive regardless of the PDR purpose or action. Although the market reaction is more positive for higher R&D intensity firms, it is not directly affected by the firm's prior financial performance or whether the firm's primary PDR objective is to increase revenues or cut costs. However, the interaction between the firm's prior financial performance and its primary PDR objective is significant. For firms that are financial outperformers, the market reaction is more positive if the firm's primary PDR objective is to increase revenues. For financial underperformers, the market reaction is more positive if the firm's primary PDR objective is to cut costs.     

Investment in Facility Changeover Flexibility for Early Entry into High‐Tech Markets

A model is introduced to analyze the manufacturing‐marketing interface for a firm in a high‐tech industry that produces a series of high‐volume products with short product life cycles on a single facility. The one‐time strategic decision regarding the firm's investment in changeover flexibility establishes the link between market opportunities and manufacturing capabilities. Specifically, the optimal changeover flexibility decision is determined in the context of the firm's market entry strategy for successive product generations, the changeover cost between generations, and the production efficiency of the facility. Moreover, the dynamic pricing policy for each product generation is obtained as a function of the firm's market entry strategy and manufacturing efficiency. Our findings provide insights linking internal manufacturing capabilities with external market forces for the high‐tech and high‐volume manufacturer of products with short life cycles. We show the impact of manufacturing efficiency and a firm's ability to benefit from volume‐based learning on the dynamic pricing policy for each product generation. The results demonstrate the benefits realized by a firm that works with its manufacturing equipment suppliers to develop more efficient and flexible technology. In addition, we explore how opportunities afforded by pioneer advantage enable a firm operating a less efficient facility to realize long term competitive advantage by deploying an earlier market entry strategy.     

Product Design Awards and The Market Value of The Firm

Product design has increasingly been recognized as an important source of competitive advantage. This study empirically estimates the impact of effective design on the market value of the firm. We use a firm's receipt of a product design award as a proxy for its design effectiveness. Based on data from 264 announcements of design awards given to commercialized products between 1998 and 2011, we find that award announcements are associated with statistically significant positive stock market reactions. Depending on the benchmark model used to estimate the stock market reaction, the market reaction over a two‐day period (the day of announcement and the preceding day) ranges from 0.95% to 1.02%. The market reaction is more positive for smaller firms and for firms whose award winning products are consumer goods. However, a firm's growth potential, industry competitiveness, and whether a firm is a first time or repeated award winner do not significantly affect the market reaction.     

Realizing Benefits from Enterprise Resource Planning: Does Strategic Focus Matter?

A key driver of the recent wave of enterprise resource planning (ERP) implementations was the assumption that the integration of business information would provide firms with a competitive advantage, yet concrete business benefits have been uneven across adopting firms. A possible explanation is that although the resource‐based view holds that competitive advantage is derived from inimitable resources, ERP software has become a commodity. Socio‐technical theory suggests that internal organizational resources based on a foundation of ERP technology may be the true drivers of ERP benefits. A firm's strategic configuration is posited to influence the portfolio of organizational competencies available to leverage the benefits of integrated business information, and a number of hypotheses are developed based on the notion that firms with different strategic objectives will realize different operational benefits from the adoption of ERP systems. Survey data from North American manufacturing firms that have implemented ERP systems demonstrate that ERP adopters seeking operational performance improvements are likely to realize these benefits. On the other hand, those seeking external market and supply chain performance improvements must first establish a foundation of internal operational performance improvements before customer satisfaction and supply chain benefits can be realized.     

The Roles of Supply Chain Intelligence and Adaptability in New Product Launch Success

Many new product introductions continue to be unsuccessful, and while researchers have studied product development processes, relatively few studies directly address new product launch. We do so in the present research and posit that supply chain intelligence, defined as technological and competitive knowledge sourced and integrated from suppliers, customers, and competitors, plays an important role in explaining new product launch success. We further employ the knowledge‐based view to theorize that both supply chain adaptability and product innovation capability act as important mediators of the effects of supply chain intelligence on new product launch success and firm financial performance. While the former capability refers to a firm's ability to quickly adjust its supply chain to react to market and product design changes, the latter refers to the firm's proficiency in developing innovative new products. We test hypothesized relationships among these factors utilizing data collected in a survey of 229 U.S. manufacturing firms. Results point to the central role of supply chain adaptability in capturing the benefits of supplier technological intelligence for enhanced product innovation capability, new product launch success, and firm financial performance. In contrast, product innovation capability serves as the generative means by which customer and competitor intelligence is translated into more successful new product launches, which, in turn, produce superior firm financial performance. Overall, these findings contribute to a better understanding of factors that can explain why certain product launches are more successful than others, and offer practical insights for appropriate investments in the development of related knowledge resources.     

Linking product modularity to supply chain integration and flexibility

Abstract

This study builds a moderated mediation model to empirically investigate the impacts of product modularity and supply chain integration (i.e. supplier, customer, and internal integration) on the flexibility and moderating effects of the product life cycle (i.e. growth and maturity stages) on the relationships using data collected from 204 Chinese manufacturers. The findings reveal that both supplier integration and internal integration mediate the relationship between product modularity and flexibility. Moreover, the indirect effect of product modularity on flexibility through supplier integration is stronger during the growth stage than during the maturity stage. There is no difference in the indirect effect of product modularity on flexibility through internal integration, which is significant in both the growth and maturity stages. In addition, the impact of product modularity on customer integration is significantly stronger, whereas that of customer integration on flexibility is significantly weaker during the growth stage than during the maturity stage.     

Strategic Sourcing in the Presence of Uncertain Supply and Retail Competition

This study develops an analytical model to evaluate competing retail firms' sourcing strategies in the presence of supply uncertainty. We consider a common supplier that sells its uncertain supply to two downstream retail firms engaging in price competition in a horizontally differentiated product market. The focal firm has a dual‐sourcing option, while the rival firm can only source from the common supplier. We assess the system‐wide effects of supply uncertainty on the focal firm's incentive to pursue the dual‐sourcing strategy. We find that the focal firm's dual‐sourcing strategy can create a win–win situation that leads to increased retail prices and expected profits for both firms. Furthermore, under certain conditions, we show that it is beneficial for the focal firm to strategically source from the common supplier, even if its alternative supplier offers a lower wholesale price. Overall, we identify two types of incentives for adopting the dual‐sourcing strategy: the incentive of mitigating supply risk through supplier diversification and the incentive of strategic sourcing for more effective retail competition.     

Multi‐Product Quality Competition: Impact of Resource Constraints

We study a multi‐product firm with limited capacity where the products are vertically (quality) differentiated and the customer base is heterogeneous in their valuation of quality. While the demand structure creates opportunities through proliferation, the firm should avoid cannibalization between its own products. Moreover, the oligopolistic market structure puts competitive pressure and limits the firm's market share. On the other hand, the firm has limited resources that cause a supply‐side fight for adequate and profitable production. We explicitly characterize the conditions where each force dominates. Our focus is on understanding how capacity constraints and competition affect a firm's product‐mix decisions. We find that considering capacity constraints could significantly change traditional insights (that ignore capacity) related to product‐line design and the role of competition therein. In particular, we show that when the resources are limited, the firm should offer only the product that has the highest margin per unit capacity. We find that this product could be the diametrically opposite product suggested by the existing literature. In addition, we show that for intermediate capacity levels, whereas the margin per unit capacity effect dominates in a less competitive market, proliferation and cannibalization effects dominate in a more competitive market.     

Managing Technology Selection and Development Risk in Competitive Environments

Managing development decisions for new products based on dynamically evolving technologies is a complex task, especially in highly competitive industries. Product managers often have to choose between introducing an incrementally better, safe new product early and a superior, yet highly risky, product later. Recommendations for managing such performance vs. time‐to‐market trade‐offs often ignore competitive reactions to development decisions. In this paper, we study how a firm could incorporate the presence of a strategic competitor in making technology selection and investment decisions regarding new products. We consider a model in which an innovating firm and its rival can introduce a new product immediately or pursue a more advanced product for later launch. Further, the firm can reduce the uncertainty surrounding product development by dedicating more resources; the effectiveness of this investment depends on the firm's innovative capacity. Our model generates two sets of insights. First, in highly competitive industries, firms can adopt different technologies and effectively use introduction timing to mitigate the effects of price competition. More importantly, the firm could strategically invest in the advanced product to influence its rival's technology choice. We characterize equilibrium development and investment decisions of the firms, and derive innovative capacity hurdles that govern a firm's choice between the risky and safe alternatives. The effects of development flexibility—where firms might have the option to revert to the safe product if the advanced product fails—are also considered.     

Complementary Drivers of New Product Development Performance: Cross‐Functional Coordination,Information System Capability,and Intelligence Quality

Coordination efforts that access and align relevant cross‐functional expertise are regarded as an essential element of innovation success. In recent years, these efforts have been further augmented through complementary investments in information systems, which provide the technological platforms for information sharing and coordination across functional and organizational boundaries. Somewhat overlooked has been the critical mediating role of the intelligence gained through these efforts and capabilities. This study draws on the theory of complementarity to elaborate on the nature of this mediating concept. Theoretical predictions of the model are tested using instrument variable regression analysis of data collected from a sample of publicly traded US manufacturing firms. The findings suggest that the effects of both internal and external coordination on market intelligence and supply‐chain intelligence are moderated by the firm's information system capability. The effect of both types of intelligence quality on new product development performance was contingent with the effects being enhanced (attenuated) when the market conditions were dynamic (stable). The results are robust to common‐method bias, endogeneity concerns, and alternative estimation methods.     

Systems Collaboration and Strategic Collaboration: Their Impacts on Supply Chain Responsiveness and Market Performance*

Recognizing the importance of interfirm collaboration and recent advancement of information technology (IT) to enhance joint decision making between firms, this study conceptualizes systems collaboration and strategic collaboration as two essential types of interfirm collaboration. The study then simultaneously examines the multiple roles of systems collaboration and strategic collaboration, and how they directly and indirectly influence a firm's supply chain responsiveness and market performance. Hypotheses are tested on survey data collected from 184 firms. Results suggest that the sequential relationships among IT competency, interfirm collaboration, and supply chain responsiveness have significant market performance implications.     

How Excessive Stage Time Reduction in NPD Negatively Impacts Market Value

We empirically investigate how time reductions in particular product development stages impact market value. Using longitudinal project data from 107 firms, we compare stage times prior to and following investments in new product development process changes. Our analysis reveals a predominance of focus on time reduction in the late stages of product development. We also find support for the existence of an inverted‐U relationship between market performance and time reductions for some of these stages: beta testing and technical implementation. Therefore, while time reductions can improve time to market, we observe a clear limit to the benefits associated with stage time reductions at particular stages. We also investigate the role of strategic contextual factors such as the extent to which a firm's patented innovations rely upon a variety, as opposed to a limited range, of diverse technology classes. The extent of this technology‐span impacts optimal stage time reductions. We perform an in‐depth post hoc analysis with a small set of firms to uncover how they should invest in stage time reduction given our empirical results. The post hoc analysis highlights that some firms are likely overinvesting in stage time reductions and destroying market value.     

Introduction to Innovation WITHIN and ACROSS Borders: A Review and Future Directions

Innovation is an integral part of every firm's ongoing operations. While new product and service creation is an essential task to ensure a firm's immediate success in the marketplace, process and supply chain innovations can also create a unique source of competitive advantage for the future. Encouraging innovative thinking, developing new innovations, and managing the processes by which those innovations are developed are critical aspects of today's firm. Consequently, research which aids in the creation and maintenance of innovative firms is an important topic of inquiry for research communities on innovation management, including the operations management and information systems communities. We review the literature in this important area and offer suggestions for future research on the following topics: innovation within a firm and across the supply chain, technology management, and new product and service development.     

Managing Differentiation‐Integration Duality in Supply Chain Integration*

Existing research focuses on the positive returns to operational performance of firms’ supply chain integration (SCI) with suppliers, buyers, and customers. We draw on differentiation‐integration duality and contingency theory to suggest that manufacturing firms should seek to achieve both integration through supply chain coordination activities and differentiation through modularity‐based manufacturing practices (MBMP). Using a sample of 261 manufacturing firms, we identify an inverse U‐shaped relationship between SCI and operational performance. Furthermore, we find support for the importance of differentiation‐integration duality as a fit between high levels of SCI and high levels of MBMP results in enhanced operational performance. We find support for a contingency perspective as fit is especially critical at higher levels of environmental uncertainty. Implications for theory, practice, and further research are suggested.     

Push and Pull Contracts in a Local Supply Chain with an Outside Market*

Wholesale price contracts are widely studied in a single supplier‐single retailer supply chain, but without considering an outside market where the supplier may sell if he gets a high enough price and the retailer may buy if the price is low enough. We fill this gap in the literature by studying push and pull contracts in a local supplier–retailer supply chain with the presence of an outside market. Taking the local supplier's maximum production capacity and the outside market barriers into account, we identify the Pareto set of the push and/or pull contracts and draw managerial implications. The main results include the following. First, the most inefficient point of the pull Pareto set cannot always be removed by considering both the push and pull contracts. Second, the supplier's production capacity plays a significant role in the presence of an outside market; it affects the supplier's negotiating power with the retailer and the coordination of the supply chain can be accomplished only with a large enough capacity. Third, the import and export barriers influence the supply chain significantly: (i) an export barrier in the local market and the supplier's production capacity influence the supplier's export strategy; (ii) a low import (resp., export) barrier in the local market can improve the local supply chain's efficiency by use of a push (resp., pull) contract; and (iii) a high import (resp., export) barrier in the local market encourages the supplier (resp., retailer) to bear more inventory risk.     

e‐Integration in the Supply Chain: Barriers and Performance*

Current opinion holds that Internet‐based supply chain integration with upstream suppliers and downstream customers (called “e‐integration” in this paper) is superior to traditional ways of doing business. This proposition remains untested, however, and similarly we know little about what are the upstream, internal, and downstream barriers to implementing e‐integration. This paper empirically addressed these questions using data from a large single nation study, and found (1) a positive link between e‐integration and performance, and (2) that internal barriers impeded e‐integration more than either upstream supplier barriers or downstream customer barriers. Findings from this study contribute to our theoretical understanding of implementing change in contemporary supply chains, and have important implications for manufacturers interested in improving their supply chain's performance using the Internet.     

Interorganizational Governance Value Creation: Coordinating for Information Visibility and Flexibility in Supply Chains*

More thoroughly understanding how interorganizational governance value can be created by information technology and other governance mechanisms is critical for supply chain management. Based primarily on transaction‐cost economics and supplemented by the resource‐based view, this study investigates how interorganizational governance (i.e., relational governance and virtual integration) can create value (i.e., information visibility and supply chain flexibility) in the supply chain context. The findings show that both relational governance and virtual integration benefit information visibility. Those results also support both direct and indirect (via information visibility) effects of relational governance on supply chain flexibility. Although failing to affect supply chain flexibility directly, virtual integration can still improve supply chain flexibility with its ability to enhance information visibility. Thus, interorganizational governance mechanisms emphasizing both control and collaboration can influence the gain from collaboration‐specific capabilities, leading to the competitive advantage of a supply chain. The results of the study suggest that firms can gain greater supply chain flexibility within existing interfirm relationships by enhancing information visibility through virtual integration and relational governance.     

Responsive Pricing Newsvendor Networks with Discretionary Commonality

Discretionary commonality is a form of operational flexibility used in multi‐product manufacturing environments. Consider a case where a firm produces and sells two products. Without discretionary commonality, each product is made through a unique combination of input and production capacity. With discretionary commonality, one of the inputs could be used for producing both products, and one of the production capacities could be used to process different inputs for producing one of the products. In the latter case, the manager can decide, upon the realization of uncertainty, not only the quantities for different products (outputs) but also the means of transforming inputs into outputs. The objective of this study is to understand how the firm's value, its inventory levels for inputs and capacity levels for resources are affected by the demand characteristics and market conditions. In pursuing this research, we extend Van Mieghem and Rudi ( 2002 )'s newsvendor network model to allow for the modeling of product interdependence, demand functions, random shocks, and firm's ex post pricing decision. Applying the general framework to the network with discretionary commonality, we discover that inventory and capacity management can be quite different compared to a network where commonality is non‐discretionary. Among other results, we find that as the degree of product substitution increases, the relative need for discretionary commonality increases; as the market correlation increases, while the firm's value may increase for complementary products, the discretionary common input decreases but the dedicated input increases. Numerical study shows that discretionary flexibility and responsive pricing are strategic substitutes.