Establishing safety stocks for master production schedules

The basic master production scheduling problem assumes that periodic demands are known with certainty. Uncertainty in the forecasts arc typically accommodated afterwards by adding safety stocks to a schedule. Two popular methods for establishing safety stocks are: (1) the constant cycle service level method; and (2) the constant safety stock method. This paper outlines these methods and then develops a third method which results in optimal safety stocks. The paper includes an experimental investigation aimed at comparing performances of the three safety stock methods. The constant safety stock method is shown to perform within one or two per cent of optimal, while the constant cycle service level method performs worse under most conditions. Shorter lead times, variable order interval lengths, and time-dependent forecast errors all adversely affect the performances of the non-optimal methods. An operations manager could use these results to evaluate the appropriateness of the methods for his master production scheduling environment.     

THE VALUE OF CONSUMER CHOICE AND THE DECLINE IN HMO ENROLLMENTS

Health insurance contracts may restrict consumers' choice of medical provider (e.g., hospital) in order to minimize moral hazard inefficiencies. In this article, I assess the economic value of this strategy by comparing the estimated “option value” that consumers assign to provider choice to the negotiated discounts that insurers can achieve by negotiating with a restricted set of providers (i.e., volume discounts). Using a panel of federal employees' health plan choices from 1999 to 2003, I show that the practice of selective contracting (SC) with a limited set of hospitals reduced health maintenance organization (HMO) plans' expected utility by $62–$118, on average, for a standard reduction in the provider choice set. I also conduct simulations which show that by 2003 health plans using SC were theoretically unable to achieve sufficiently large volume discounts from hospital providers to fully compensate for the associated utility losses. My results help to explain the flight from HMO enrollments that occurred in the early 2000s. (JEL I10, I11, L15, D83, D12)     

LABOR MARKET EFFECTS OF EMPLOYER-PROVIDED HEALTH INSURANCE

This is an experimental study in economics of mandated benefits. Most individuals who have health insurance in the United States obtain it through their employer. Some states require employers to provide insurance to certain types of workers. We used an experimental laboratory to investigate possible effects of alternative health insurance regulations on the competitive labor market performance. We found that mandating the insurance for all workers creates labor market distortions, whereas mandating the insurance only for full-time workers leads to a higher coverage than under no mandate, an increased number of part-time workers, but does not necessarily lower market efficiency. ( JEL C92, I18, J2)     

USING SHORT-TERM DEDICATION FOR SCHEDULING MULTIPLE PRODUCTS ON PARALLEL MACHINES

In a multiproduct, parallel machine environment, it may be beneficial to dedicate one or more of the machines to a single product for consecutive time periods. However, previous lot-sizing and scheduling models usually do not allow for such short-term dedication. This paper presents a mixed-integer programming model that allows for short-term dedication in scheduling parallel machines serving multiple products with dynamic demands. It also describes a Lagrangian-based algorithm for solving such scheduling problems. An experiment verifies the effectiveness of the algorithm and demonstrates the importance of allowing for short-term dedication. Capacity utilization, one of six factors investigated, greatly affects the use of dedication. A strong interaction effect between the number of machines and the number of products is also seen with respect to the usefulness of short-term dedication. A measure of estimated production frequency incorporates these two factors along with magnitudes of periodic demands. This measure has a strong relationship with the amount of short-term dedication used in solutions. Operations managers employing parallel machines could use the experimental results in deciding whether to use short-term dedication to reduce costs.     

REPUTATION AND EARNINGS: THE ROLES OF QUALITY AND QUANTITY IN ACADEME

We examine the determinants of professional reputation. Does quantity of exposures raise reputation independent of quality? Does quality of the most important exposure have extra effects on reputation? In a very large sample of academic economists, there is little evidence that a scholar's most influential work provides any extra enhancement of reputation. Quality rankings matter more than absolute quality. Quantity has a zero or even negative effect on proxies for reputation. Data on salaries, however, show positive effects of quantity independent of quality. We test explanations for the differences between the determinants of reputation and salary. (JEL L14, J31)     

LOGISTICS MANAGEMENT SYSTEM: AN ADVANCED DECISION SUPPORT SYSTEM FOR THE FOURTH DECISION TIER DISPATCH OR SHORT-INTERVAL SCHEDULING

The Logistics Management System (LMS) is a real-time transaction-based system combining decision technologies from AI, MS/OR, and decision support system that serves very successfully as a dispatcher or short-interval scheduler by monitoring and controlling the manufacturing flow of IBM's semiconductor facility near Burlington, Vermont. LMS coordinates the actions and decisions of several logically isolated participants in a serially dependent system of activities. Therefore, it balances the requirements of several goals (cycle time, output, serviceability, and inventory management) that compete for the same resource, exploits emerging opportunities on the manufacturing floor, and reduces the distortion from unplanned events. This paper provides an overview of the LMS application, the concept of interrelated decision tiers in manufacturing decision making, and the need for the dispatch decision tier to successfully reduce apparent randomness. Historically, production and operations management has ignored this decision tier. This has significantly limited our ability to make an impact on the performance of the manufacturing operation.