Case in Point: Managing Inventory to Maximize Profit

2017-10-03 09_46_52-SAGE Knowledge - SAGE Business CasesDo young professionals want robot vacuum cleaners more than they want waffle makers? Catering to young professionals who have little time to cook meals or clean their homes, The Young Professional Dream Company, Inc. sells an array of electronic appliances. As a start-up e-commerce company with a limited budget, it must be careful to stock the most in-demand products for their customers. But how do they determine the right products to order from their suppliers, and how much?

These questions are explored in the case study, The Young Professional Dream Company’s Stochastic Inventory Management Problem, by Wenbo Cai and Layek Abdel-Malek of the New Jersey Institute of Technology. Published in SAGE Business Cases, the case examines how the start-up manages its inventory by using data to forcast demand, identifying ordering policies, and evaluating how its contracts with suppliers will impact its profit.

 

Interested in learning more, we interviewed the authors for our Case In Point Series. Read the full interview below.

1. Your case is about a young company’s efforts to procure inventory while sticking to a limited budget. What are some common challenges that arise when start-upsembark on this kind of detailed operations management planning?

Usually start-up companies have known historical data regarding their suppliers’ performance, lead times, and quality. However, they do not know about the demands of their customers and their nature. The problem is then compounded by budget limitation and how to allocate it among the competing products. As a result, when a start-up company embarks on operations management planning, it usually faces many blind spots. Applying operations management techniques could be quite helpful to alleviate some of these challenges.

2. How difficult or risky is it to keep in mind a product’s demand uncertainty when evaluating suppliers and Order Quantity Commitments?

Unlike the common Economic Order Quantity models where the costs of the ordering policy are less sensitive to the order quantities, when the demand is uncertain, the amount ordered affects drastically the profitability of the company. The variance in the demand of a product will have a significant impact on the order quantity even in cases where the average is the same.

3. What are some strategies small start-ups (particularly those with limited money to invest) can apply when negotiating pricing with suppliers?

Start-up companies should negotiate as much flexibility as possible in their contracts which allow for updating their orders during the season, the return of left-overs, low extra charge for expedite deliveries, low minimum order quantities, and ability to pass over one or more of the products on the list.

4. You developed an exercise for this case in which readers are given a hypothetical budget to spend on stock, shipping costs, and more. What’s the benefit of providing decision-making exercises in case studies?

The case we developed goes beyond the single-period stochastic inventory model, which is  often used as a demonstrative strategy in operations management. However, this strategy may need to be modified when companies have a limited budget or other restrictions. We want to highlight some of these issues companies may face in this case study and provide an opportunity for students to discover the rich literature in operations management that discusses these issues in-depth. Moreover, the case study is intended for students to act as decision makers by weighing quantitatively the benefits and costs of flexible contract terms.

5. In your opinion, how does teaching with case studies expose students to the kind of operational dilemmas they might face in their careers?

We think case studies, in general, promote the development of analytical skills by asking students to act as decision makers. Unlike the traditional problems where the real-world challenges have been extracted and synthesized into useful information and the students only need to figure out what methodology to apply, there are no definitive answers of which methodology is the most suitable or guarantees the best performance in case studies. Students have to figure that out by exercising critical thinking, researching, and discussing with group members.

6. Can you share any tips for new instructors using this case in their course?

I believe that it is beneficial to analyze this case in the following steps.

  • Understand the risk of demand uncertainty without the consideration of contract terms. For example: the impact of unsold inventory on the retailer’s profit is relatively easy to compute, but how are companies, both brick-and-mortar retailers and e-commerce companies, handling unsold items in practice?
  • Explore the joint impact of the minimum ordering quantity and penalty. Though the minimum ordering quantity and penalty are given in the case, performing sensitivity analysis will give students insights on the joint impact of the two factors.
  • Investigate the benefit of the expedited-delivery option. In addition to question four in the case (What are the criteria under which you should exercise the expedited-delivery option?), the instructors may want to ask questions pertaining to the supplier’s side. For example: Why would a supplier want to offer flexible contract terms? How expensive is it to provide these options? Is there a win-win situation for both the supplier and the retailer in terms of their expected profitability? Please see the following paper for answers: Cai, W., Abdel-Malek, L., Hoseini, B., & Dehkordi, S. R. (2015). Impact of flexible contracts on the performance of both retailer and supplier.International Journal of Production Economics170, 429-444.

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Interactions Between Justice Levels and Trajectories Predicting Behavioral Reciprocity

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[We’re pleased to welcome authors Alex Rubenstein of the University of Memphis, David G. Allen of Texas Christian University, and Frank A. Bosco of the Virginia Commonwealth University. They recently published an article in the Journal of Management entitled “What’s Past (and Present) Is Prologue: Interactions Between Justice Levels and Trajectories Predicting Behavioral Reciprocity,” which is currently free to read for a limited time. Below, Rubenstein discusses the events and circumstance that inspired his research:]

JOM_42_5_Covers.inddWe began this paper by considering the nature of how people experience fairness in the workplace. Certainly any instance of fair or unfair treatment can have an effect on employee’s attitudes and behavior in the future, but we were also interested in how the past can differently shape employee’s interpretation of the present. For instance, imagine two employees who think their organization is moderately fair. Previous studies would expect them to have similar attitudes and be equal organizational citizens in the future. However, we wondered whether past fairness experiences—specifically, the trajectory of experienced justice in the past, if has been getting better, worse, or staying the same—could color the interpretation of the present differently for these employees.

Our results, which are arguably the first that specifically examine how employees behaviorally reciprocate to this interactive pattern of past and present treatment, show that indeed the past is prologue when it comes to justice. We examined how present justice levels and trajectories over time interacted to predict helping behavior as well as future employee turnover behavior. That is, two employees who rate the exact same levels of current fairness at work may reciprocate differently (in terms of helping other employees and even their decision to remain a member of the organization) because of potentially different past trends of experienced justice. We found that the highest levels of helping, and the lowest levels of turnover were for those employees with high current levels of perceived fairness, along with a positive past trajectory. It seems that employees are most willing to reciprocate to their organizations when things are currently quite fair AND if things have been getting progressively better over time.

I think this research will spur new studies that consider the dynamic nature of organizational phenomena, and the value in looking at variables’ change over time. I feel the methodology of change modeling has only recently caught up to the theory, and a lot of fascinating contributions can be made regarding how growth and decline in phenomena (thoughts, feelings, behaviors) affect individuals, teams, and organizations as a whole.

I think new scholars looking at organizational justice can continue to take a dynamic look at its change over time, both in the short and long term. My main advice would be to brush up on research methods, such as latent growth modeling and structural equation modeling. We all have lots of questions, and its is important that researchers be equipped with the methodological tools to test those questions.

I think the most influential piece of scholarship I have read recently was Alvesson, M., & Sandberg, J. 2011. Generating research questions through problematization. Academy of Management Review, 36: 247–271. An important part of framing your study is not just “gap-filling”, but demonstrating how your study solves a problem, and this paper does a good job of explaining how to do this.

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Scales photo attributed to Artsybee. (CC)

 

Refugee Resettlement Volunteers: Committed or Compelled?

map-of-the-world-1005413_1920[We’re pleased to welcome author Kirstie McAllum of the Université de Montréal, Canada (Ph.D, University of Waikato, New Zealand). McAllum recently published an article in Human Relations entitled “Committing to refugee resettlement volunteering: Attaching, detaching, and displacing organizational ties,” which is currently free to read for a limited time. Below McAllum summarizes her research and findings:]

HUm coverBy summer 2015, one in every 122 human beings was a refugee, internally displaced person or asylum seeker. Volunteers play an essential role in helping newly arrived refugees adapt to their new country and local community, but sometimes volunteering can be difficult or disappointing when refugees do not want to be helped or expect volunteers to deliver the help differently. When this happens, volunteers can find staying committed difficult, and they often drop out.

This study focused on how the network of people around refugee resettlement volunteers influenced their involvement: the non-profit organization that recruited and supported them; the refugees they worked with; and their own families, friends, and work colleagues. These ‘others’ made a difference in decisions about committing depending on their presence (they were there for volunteers or they expected volunteers to ‘be there’ for them) or absence (they were not there when volunteers needed them).

Volunteers felt forced to be present at the beginning of their six month placement because of the small number of volunteers and the needs of highly vulnerable families. The organization focused on how volunteers could manage this pressure by creating ‘boundaries’ that would protect them from getting over-involved. Over the course of the placement, volunteers found these boundaries hard to manage. Over-worked and under-funded staff at the non-profit organization were frequently ‘absent’ or unavailable to help volunteers to furnish refugees’ new homes or deal with crises like the arrest of a family member. Their absence pushed volunteers to step in to make sure that refugees received support. Refugees, on the other hand, encouraged volunteers to be continually present. Volunteers were pulled toward the relationship for several reasons: the learning and pleasure involved in the placement; awareness of refugees’ needs; and at times, refugees’ demands that they visit more often, stay longer, or support them in a range of activities, even including driving lessons. Volunteers were only able to maintain their presence when their own family and friends supported them.

After six months, only a few volunteers kept up their relationships with families and the organization, because the organization had been there in difficult moments. Most volunteers stopped volunteering for the organization, but kept in touch with the family. They did not think they needed the organization’s help, since they had managed so far without it, but they felt guilty about stepping back from a rich, rewarding relationship with a family who needed ongoing emotional support or had major problems. A third group of volunteers abandoned the role completely. Guilt didn’t ‘work’ for the last group of volunteers, for whom volunteering had been a highly negative experience: the organization had been absent, their own social networks pressured them to be present elsewhere, and refugees had made too many unreasonable demands on them to be present.

Although the non-profit organization cannot influence the quality of the relationships that volunteers develop with refugees, the findings suggest that having professional staff to help volunteers deal with crises and manage day-to-day boundaries might stop experienced volunteers from dropping out. To do this, this non-profit organization needs to lobby decision-makers for more resources for volunteer support.

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Migration photo attributed to kalhh. (CC)

 

Strategic Value Contribution Role of HR

VisionIn the face of climate change and unaccountable corporations, consumers are increasingly vocal about their desire to support transparent companies that actively fight for social justice and offer eco-friendly products and alternatives to conventional items. In response, more brands are demonstrating accountability. Some of the fastest growing businesses are those in the natural product category, those with recycled and recyclable packaging, sweatshop-free and fair trade sourcing, and brands with affiliations with charitable organizations. All else equal, people are investing in brands they feel align with their values.

But, unfortunately it has been found that in spite of showing concern for the environment and advocating environmentally safe activities, the Indian consumer is still not ready to accept the hard truth that it the responsibility of one and all to minimize their contribution to the overall environmental pollution. This article from the journal ‘Vision’ aims at studying socio-psychological factors which contribute in the formation of environmental attitude of consumers. It further aims at establishing the connection between environmental attitude of the consumer and his/her willingness to buy environmentally friendly products.

The socio-cultural, psychological and demographic factors have manifested divergent relationship between attitude and behaviour. There is inadequate understanding of antecedents of consumer’s environmentally friendly attitude and willingness to buy environmentally friendly product. Some authors argue that many consumers claim that they care about the environment; their buying behaviour does not always reflect this concern.

It has been found that the dimensions, such as environmental knowledge (EK), perceived seriousness of environmental (PSE) problem, interpersonal influence (IPI), collectivism and long-term orientation (LTO), have positive relationship with consumer environmental attitude (CEA)

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Text Mining in Organizational Research

text-mining-1476780_1920[We’re pleased to welcome authors Dr. Stefan Mol, Vladimer B. Kobayashi, Hannah A. Berkers, Gabor Kismihok, and Deanne N. Den Hartog of the University of Amsterdam. They recently published an article in Organizational Research Methods entitled “Text Mining in Organizational Research,” which is currently free to read for a limited time. Below, Dr. Mol recounts the events that led to the research and the significance it has to the field:]

07ORM13_Covers.inddWere there any specific external events that influence your decision to pursue this research?
One critical on-going event that lead us to pursue this research is the revolution and promise brought by the rise of big data to understand and enhance organizational processes. A large proportion of these data are comprised of texts that are generated every day at rates that imply that manual analysis of all of this data is no longer possible. The abundance of untapped text data suggest the existence of information with the promise of generating new knowledge that may be used to enhance both individual and organizational level outcomes.
Although, organizations already collect and store text data, many do not fully take advantage of the knowledge that can be gleaned from analyzing text. This may be due to a lack of expertise in conducting automatic text analysis or text mining. The mission of our work here is to empower organizational researchers by raising awareness of the possibilities afforded by text mining, helping them see how text mining might help them answer their research questions, and helping them to understand and use the text mining process and tools.
In what ways is your research innovative, and how do you think it will impact the field?
With this article we hope to contribute by facilitating dialogue between data scientists and organizational researchers about the opportunities afforded by text mining. As an example, we illustrate the role that text mining of vacancies might play in job analysis. Previous approaches to job analysis rely on time consuming collection and analysis of survey and observation based data the results of which soon become outdated due to the fast changing nature of jobs. Using text mining we demonstrate how one can take advantage of other data sources such as online job vacancies to understand the requirements and skill demands of different types of jobs. Our goal is to not only apply text mining to the field of job analysis but more importantly to inform organizational researchers about the wide-ranging uses text mining could have in organizational research. We hope that this will spark an increase in the use of text data and machine learning in organizational research.
What advice would you give to new scholars and incoming researchers in this particular field of study?
Existing text mining solutions are technique and tool-oriented because most techniques and Big Data tools are currently primarily shaped by technical fields, such as statistics and computer science, that put greater emphasis on the computational and technological aspects. However, applying these in the field of organizational research holds great promise. Organizational researchers bring with them a repertoire of organizational theories. These theories provide domain specific information and requirements that can influence the selection of techniques and analytical strategy, and the way to evaluate the success of the particular application. Our advice for incoming organizational researchers wanting to explore text mining is to draw on their own theoretical expertise and from there start selecting the appropriate techniques and approaches to text mining. Also, as with using other analytical tools, we do need to pay careful attention to rigor in evaluation and validation of text mining based results.

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The Influence of Textual Cues on First Impressions of an Email Sender

[We’re pleased to welcome authors Shannon L. Marlow of Rice University, Christina N. Lacernza of University of Colorado Boulder, and Chelsea Iwig of the NASA Johnston Space Center. They recently published an article in the Business and Professional Communication Quarterly entitled “The Influence of Textual Cues on First Impressions of an Email Sender,” which is currently free to read for a limited time. Below, Marlow reveals the motivation for conducting this research:]

BPCQ.indd“Our motivation in pursuing the present research was to uncover practical implications regarding how to compose an email and explore facets of virtual communication. Specifically, we were interested in emails within a business context and how subtle cues within the email would influence perceptions of the email sender. We assessed whether closing salutations would impact the email receiver’s perception of the sender. As the cues within an email are limited, we believed that such cues would have an impact. We manipulated closing salutations (i.e., no salutation, “Thanks!,” “Best,” or “Thank you”), gender of the email sender, and sending method (i.e., email sent via desktop computer/laptop as compared to email sent via a mobile device). We assessed how these manipulations influenced perceptions of positive affect, negative affect, professionalism, and competence.

We were surprised to find that, on the whole, study participants rated women senders as more professional across the majority of conditions; however, women were rated as less competent when they used the “Thanks!”salutation. It appears that women are penalized for using this particular salutation whereas men are perceived similarly, in regards to competence, across all closing salutations examined in this study. We were further surprised to find that there were no differences in regards to perceptions of senders using different sending methods. It appears individuals perceive mobile devices as a professional method of communication for business exchanges. Finally, and in line with similar findings from the literature, we found that positive affect can be conveyed through using an exclamation point (i.e., using “Thanks!” as a closing salutation) and thus punctuation may be used to convey excitement and enthusiasm about work-related matters. On the whole, our findings indicate that subtle cues within emails are capable of influencing perceptions and individuals should reflect carefully when composing an email to ensure they are doing so in a way that promotes desired perceptions.”

 

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Discover the Hidden or Not-So-Hidden Implications of ‘Entrepreneurship’ and ‘Knowledge Management’ That Facilitate Management of ‘Organizational Change’

BMC coverChange is constant in a business environment. Survival of the fittest is all about adaptability to a changing environment and adjusting to new competitive realities, in short ‘agility’.

We live in volatility, uncertainty, complexity and ambiguity world, which is an era of risk and instability. Globalization, new technologies, greater transparency and social responsibility have combined to increase the complexity of the business environment to give many CEOs a deep sense of unease. On the other hand, enterprising CEOs sense great opportunities in this uncertainty and change.

Industry competition has always been a fact of life, but in current business environment, the chasm between ‘relevance’ and ‘obsolescence’ threatens to grow wider every day. To avoid obsolescence, firms must be agile and be able to pre-empt the move embracing innovation. Global competition has become an entirely new game, with a more crowded playing field, with networked economies and a faster clock. In the past, executives could quickly size up their competitors and could anticipate their tactical moves. But now, firms in all sectors have to be on constant alert to face new technology-enabled challengers that are sprouting with surprising speed from unsuspected corners of the globe. Firms need to anticipate geopolitics, globally emerging trends and markets, and be proactive to these new demands with knowledge, innovation and entrepreneurship. They also need to be equipped on ‘How to evolve a strategy for coping with unanticipated events, challenges and crises? How does leadership create a work-environment and work-life that not only survives a crisis but capitalizes on today’s frequent and disruptive accelerating changes?’

Knowledge is a strategic resource in knowledge-intensive world, its effective management by the organizations is critical for competitiveness. The culture of innovation which enables continuous pumping of new technologies would have a strong impact on firm’s competitiveness, working life and expected behaviour.

To read in detail about Change Management Drivers and its relationship with Entrepreneurship and Knowledge Management, subscribe to the recent issue from South Asian Journal of Business Management.

Click here to read Change Management Drivers: Entrepreneurship and Knowledge Management for free from South Asian Journal of Business Management.