Managing Supply Risk for Vertically Differentiated Co-Products

• 成果类型: Article
• 署名作者: Bansal, Saurabh; Transchel, Sandra
• 署名单位: Pennsylvania Commonwealth System of Higher Education (PCSHE); Pennsylvania State University; Pennsylvania State University - University Park; Kuhne Logistics University
• 刊物名称: PRODUCTION AND OPERATIONS MANAGEMENT
• ISSN/ISSBN: 1059-1478
• DOI: 10.1111/poms.12173
• 发表日期: 2014
• 页码: 1577-1598
• 关键词: operations strategy; Product substitution; co-production systems; product line

摘要

The manufacturing complexity of many high-tech products results in a substantial variation in the quality of the units produced. After manufacturing, the units are classified into vertically differentiated products. These products are typically obtained in uncontrollable fractions, leading to mismatches between their demand and supply. We focus on product stockouts due to the supply-demand mismatches. Existing literature suggests that when faced with product stockouts, firms should satisfy all unmet demand of a low-end product by downgrading excess units of a high-end product (downward substitution). However, this policy may be suboptimal if it is likely that low-end customers will substitute with a higher quality product and pay the higher price (upward substitution). In this study, we investigate whether and how much downward substitution firms should perform. We also investigate whether and how much low-end inventory firms should withhold to strategically divert some low-end demand to the high-end product. We first establish the existence of regions of co-production technology and willingness of customers to substitute upward where firms adopt different substitution/withholding strategies. Then, we develop a managerial framework to determine the optimal selling strategy during the life cycle of technology products as profit margins shrink, manufacturing technology improves, and more capacity becomes available. Consistent trends exist for exogenous and endogenous prices.