Service Operations Management Research Articles

Production and Capacity Management with Internal Financing

We formulate and analyze a stylized dynamic model of a price-taking firm that manages production and capacity, uses only internal financing, and faces stochastic market environments. The firm has two operationally independent production facilities, each of which makes two products, and a cash reserve that finances all operations and dividend issuance. Each period the firm chooses the amount of dividend to issue, and at each facility it chooses production quantities and amounts of capacity to augment or divest. Relevant market data are exogenous and evolve stochastically. We completely characterize the optimal policy and the endogenous values of the capacities and cash reserve, and show that they invite a real-option interpretation. We find that internal financing creates a spillover between the endogenous values of the two operationally independent facilities, and we specify how this leads to interdependence of their optimal policies. We show that an “invest/stay put/divest” (ISD) policy remains optimal for partially irreversible investments, but internal financing changes the ISD thresholds. If the exogenous data are intertemporally independent, an internally financed firm is less likely to issue dividends or to expand capacity than if it were in a perfect capital market. As the market becomes more volatile, the endogenous values of capacities and cash increase, and the firm becomes more reluctant to issue dividends. The online appendix is available at https://doi.org/10.1287/msom.2017.0655 . This paper has been accepted for the Manufacturing & Service Operations Management Special Issue on Interface of Finance, Operations, and Risk Management.

Trade Credit Financing Under Competition and Its Impact on Firm Performance in Supply Chains

Using a dyadic panel data set that links U.S. suppliers with their major buyers, we study how trade credit responds to various types of competition in supply chains, as well as the impact of trade credit on firm performance. We find that suppliers with smaller market share are associated with more trade credit, confirming that suppliers with weak market power use trade credit as a competitive tool. Next, we find that buyers with larger market share are associated with more trade credit, whereas suppliers selling to a concentrated buyer base are associated with less trade credit; by differentiating competition in buyers’ markets from competition between supply chain partners, we show that the two types of competition have different impacts on trade credit. In studying the impact of trade credit on firm performance, we make the distinction between an industry-average trade credit and an individual supply chain’s deviation from such an industry average. When suppliers offer trade credit at their industry-average level, this action facilitates trade and, thus, is positively associated with both parties’ performance; conversely, when suppliers are more aggressive in their trade credit strategy than the industry average, then the excess trade credit is negatively associated with buyer performance. One managerial message from our research is that buyers should be cautious about trade credit far exceeding the industry-average level. The online appendix is available at https://doi.org/10.1287/msom.2017.0640 . This paper has been accepted for the Manufacturing & Service Operations Management Special Issue on Interface of Finance, Operations, and Risk Management.

Sourcing from Suppliers with Financial Constraints and Performance Risk

Two innovative financing schemes have emerged in recent years to enable suppliers to obtain financing for production. The first, purchase order financing (POF), allows financial institutions to offer loans to suppliers by considering the value of purchase orders issued by reputable buyers. Under the second, which we call buyer direct financing (BDF), manufacturers issue both sourcing contracts and loans directly to suppliers. Both schemes are closely related to the supplier’s performance risk (whether the supplier can deliver the order successfully), upon which the repayment of these loans hinges. To understand the relative efficiency of the two emerging schemes, we analyze a game-theoretical model that captures the interactions among three parties (a manufacturer, a financially constrained supplier who can exert unobservable effort to improve delivery reliability, and a bank). We find that, when the manufacturer and the bank have symmetric information, POF and BDF yield the same payoffs for all parties irrespective of the manufacturer’s control advantage under BDF. The manufacturer, however, has more flexibility under BDF in selecting contract terms. In addition, even when the manufacturer has superior information about the supplier’s operational capability, the manufacturer can efficiently signal her private information via the sourcing contract if the supplier’s asset level is not too low. As such, POF remains an attractive financing option. However, if the supplier is severely financially constrained, the manufacturer’s information advantage makes BDF the preferred financing scheme when contracting with an efficient supplier. In particular, the relative benefit of BDF (over POF) is more pronounced when the supply market contains a larger proportion of inefficient suppliers, when differences in efficiency between suppliers are greater, or when the manufacturer’s alternative sourcing option is more expensive. The online appendix is available at https://doi.org/10.1287/msom.2017.0638 . This paper has been accepted for the Manufacturing & Service Operations Management Special Issue on Interface of Finance, Operations, and Risk Management.

The reconfiguration of service production systems in response to offshoring

PurposeA service production system has a structure composed of task execution, agents performing tasks and a resulting service output. The purpose of this paper is to understand how such a service production system changes as a consequence of offshoring.Design/methodology/approachDrawing on practice theory, the paper investigates how offshoring leads to reconfiguration of the service production system. Through a multiple case methodology, the authors demonstrate how agents and structures interact during reconfiguration.FindingsThe paper analyses the reconfiguration of components of a service production system in response to change ignited by offshoring. The authors find recurring effects between structures that enable and constrain agents and agents who shape the structure of the production system.Research limitations/implicationsThe paper offers a novel contribution to the service operations management literature by applying practice theory. Moreover, the authors propose a detailed, activity-driven view of service production systems and service offshoring. The authors contribute to practice theory by extending its domain to operations management.Practical implicationsService production systems have the ability to self-correct any changes inflicted through offshoring of the systems, which helps firms that offshore.Originality/valueThe paper is aimed at service professionals and offshoring managers and proposes a novel presentation of the service production system with a description of how it responds to offshoring. The authors contribute to theory by applying practice theory to the fields of service operations management and offshoring.

Leveraging selected operational improvement practices to achieve both efficiency and creativity: A multi-level study in frontline service operations

Compared with the repetitive nature in manufacturing operations, frontline service operations are more dynamic because of the need to deal with many unpredictable customer-related activities. Thus, many service firms strive to achieve not only efficiency in service delivery, but also creativity in decisions or problem-solving with an aim to maintaining competitiveness in today's dynamic environments. However, the discipline of operations management has traditionally focused on improving efficiency in operational activities, while offering very limited insights regarding practices that can improve operational efficiency as well as employee creativity. Grounded in social cognitive theory, we identify three operational improvement practices in this paper, namely continuous improvement, structured methods, and psychological safety, which are pertinent to learning experiences and behaviours (i.e., major elements in developing individuals' creativity), can help service firms achieve both operational efficiency and employee creativity. We also adopt a multi-level analysis to study whether two relevant learning capabilities, namely potential absorptive capacity and ambidexterity, can enhance the effectiveness of the three identified operational improvement practices. We test our hypotheses by using survey data collected from 146 frontline teams in China's banking industry. We contribute to research on service operations management by offering new insights linking operational improvement practices and employee creativity. Service firms that value the importance of both operational efficiency and creative solutions should find our results particularly useful because our results provide precise guidelines on improving both operational performance and employee creativity through the adoption of relevant operational improvement practices and learning capabilities.

Acknowledgment to Editors and Reviewers (2016)

The continued success of Manufacturing & Service Operations Management (M&SOM) relies on the support of authors and reviewers. On behalf of M&SOM, I would like to express my sincere appreciation to the department editors, guest editors, associate editors, guest associate editors, and reviewers who provided expert counsel and guidance on a voluntary basis. The following list acknowledges those who served from January to December 2016. Through their efforts, the journal was able to provide submitting authors with timely, thoughtful, and constructive reviews. I hereby acknowledge their service for the journal, and gratefully appreciate their contributions for our profession. Christopher S. Tang, M&SOM Editor-in-Chief

2016 M&SOM Meritorious Service Award

The continued success of Manufacturing & Service Operations Management (M&SOM) depends on the volunteer work of many professionals who take their precious time to provide careful and constructive reviews of the manuscripts submitted to the journal in a timely manner. On behalf of M&SOM, Editor-in-Chief Christopher Tang would like to express his deepest gratitude to all those who served as reviewers for the journal in 2016. Among all reviewers, some individuals have distinguished themselves by reviewing several manuscripts and with each manuscript by writing a fair, critical, and constructive review in a timely fashion. In recognition of their outstanding service provided to support the journal’s scholarly mission, M&SOM grants the 2016 Meritorious Service Award to….

The Role of Service Operations Management in New Retail Venture Survival

While the factors related to the survival of established retail firms are well researched, current understanding of drivers of new retail venture survival is limited. We assess the influence of retail operations characteristics on the survival of new retail ventures. Based on data from 15,901 Portuguese retail ventures that were founded between 2006 and 2010 and followed until 2014, the new retail ventures with faster inventory turnover or higher staff expenses per employee had a higher likelihood of survival while higher investment in intangible assets had a negative but negligible effect on survival. The implications of these findings for entrepreneurs of new retailing ventures are discussed.

Information Provision Policies for Improving Farmer Welfare in Developing Countries: Heterogeneous Farmers and Market Selection

We examine the impact of information provision policies on farmer welfare in developing countries where farmers lack relevant and timely information for making informed decisions regarding which crop to grow and which market to sell in. In addition to heterogeneous farmers, we consider the case when farmers are price takers and yet the price of each crop (or the price in each market) is a linearly decreasing function of the total sales quantity. When market information is offered free of charge, we show that (a) providing information is always beneficial to farmers at the individual level and (b) providing information to all farmers may not be welfare maximizing at the aggregate level. To maximize farmer welfare, it is optimal to provide information to a targeted group of farmers who are located far from either markets. However, to overcome perceived unfairness among farmers, we show that the government should provide information to all farmers at a nominal fee so that the farmers will adopt the intended optimal provision policy willingly. We extend our analysis to examine different issues including information leakage, social welfare, precision of market information, and information dissemination via a for-profit company.This paper has been accepted for the Manufacturing & Service Operations Management Special Issue on Value Chain Innovations in Developing Economies.

Inventory Decisions and Signals of Demand Uncertainty to Investors

This paper examines how managerial short-termism can affect a firm’s inventory decision when external investors have only partial information about the firm’s demand uncertainty. We first study the scenario where the manager’s short-termism is exogenously given. We derive the full equilibrium spectrum ranging from stable separating to pooling equilibria, which yields insights for learning firms’ demand uncertainty from their inventory and sales information and for understanding the effect of managerial short-termism on firm performance. We then analyze the scenario where the manager’s short-termism is endogenous. We find that, unlike the scenario with exogenous short-termism, the first-best inventory decisions might be achieved in equilibrium on the basis of an alternative signal. This paper has been accepted for the Manufacturing & Service Operations Management Special Issue on Interface of Finance, Operations, and Risk Management.

Making sense of Big Data – can it transform operations management?

PurposeThe purpose of this paper is to focus on the application and exploitation of Big Data (BD) to create competitive advantage. It presents a framework of application areas, and how they help the understanding of targeting and scoping specific areas for sustainable improvement. Empirical evidence demonstrates the application of BD in practice and tests the framework.Design/methodology/approachAn exploratory approach is adopted to the secondary research which examines vendors’ offerings. The empirical research used the case study method.FindingsThe findings indicate that there is opportunity to create sustainable competitive advantage through the application of BD. However there are social, technological and human consequences that are only now beginning to emerge which need to be addressed if true long-term advantage is to be achieved.Research limitations/implicationsThe research develops a framework and tests it only in two dimensions. This should be expanded. The vendor analysis limitations lie within the nature of the information available and the difficulties in mitigating against bias.Practical implicationsThe suggested framework can help academics and managers to identify areas of opportunity to do so, setting new levels of performance and new agendas for business.Originality/valueThis work contributes to service operations management, building on Kranzberg (1986) and the impact of technology and on Fosso Wamba et al. (2015) by developing a systems application framework to further understanding of BD from a practical perspective to extend their research taxonomy insights. The case studies demonstrate how the use of BD enhances operational performance.

Monticello Motor Club: Straights and Corners

This case has been taught successfully in a second-year MBA elective, Management of Service Operations, in a module on service system design. The material works well to unfold with Frances Frei's service model framework. Ari Straus, a former customer of Monticello Motor Club (MMC), brought that customer perspective with him to take on the roles of CEO and president. MMC was a high-end service business with an exclusive clientele. As much as the asphalt track, racecars, and clubhouse facilities attracted members and guests, the staff's professionalism and personal touch kept them coming back and kept them recommending the club to their acquaintances. Excerpt UVA-OM-1511 Rev. Sept. 8, 2015 Monticello Motor Club: Straights and Corners The fundamentals of business and racing strategies are analogous: focus on where you're going, keep competitors in your mirrors, and plan for ever-changing conditions. —Ari Straus With over four miles of smooth black asphalt winding through the countryside within 90miles of New York City, Ari Straus, CEO and president of Monticello Motor Club (MMC), knew how enjoyable it was to step on the accelerator and leave all your problems behind in the rearview mirror. In 2007, he signed up as an early member before MMC had opened as the Drive and Race Club in 2008. Later, Straus joined the small group of private investors as a partner. In 2011, when the managing partner left to start a new business, Straus was invited to take over as president. . . .

A Pediatric Emergency Department at Lynchburg General Hospital

The emergency department (ED) at Lynchburg General Hospital (LGH) was operating at well over its capacity, and too many patients were leaving without being seen by a doctor. Chris Thomson, chairman and medical director of the LGH-ED, was charged with bringing the numbers back on track, and he began by ramping up the ED's Lean program. Thomson and the ED's new process engineer, Jennifer Stowers, set out to enhance quality, service, and efficiency while standardizing and streamlining all processes to make the ED more efficient in every way. They also felt strongly that creating a new pediatric ED would be beneficial. But would the hospital as a whole be receptive to the changes Thomson and Stowers were proposing? This case has been used in Darden's course elective “Management of Service Operations.” Excerpt UVA-OM-1523 Jan. 27, 2015 A Pediatric Emergency Department at Lynchburg General Hospital The emergency department (ED) at Lynchburg General Hospital (LGH) was the primary site where Centra Emergency Services Group (CESG) practiced. CESG was an employed-physician group comprising roughly 40 emergency-medicine physicians and 15 advanced-practice professionals. In 2010, when he was promoted to chairman and medical director of the LGH-ED, Chris Thomson, MD, would oversee system-wide emergency services at both LGH and Southside Community Hospital (SCH) in Farmville, Virginia. The LGH-ED serviced around 95,000 patients per year, and SCH-ED around 30,000 patients, bringing the combined total to 125,000 ED visits per year. The two EDs recorded $ 217million in charges and $ 89 million in collections annually. Thomson was charged with enhancing quality, service, and efficiency while standardizing all processes during an important transition from a single-hospital practice to a multisite practice serving an integrated hospital system. Exhibit 1 provides details about LGH. Prior to 2007, CESG was a democratic, independent physician practice called Lynchburg Emergency Physicians (LEP), but in 2007, LEP was dissolved and the physicians became employees of Centra Health. CESG spent the years 2007 to 2010 transitioning to this new employment model. Once the model was stable, attention turned to developing the system-wide, multisite practice. Integrating the groups, processes, and physician standards was part of the challenge that Thomson took on in 2010. . . .

A Study on the Implementation of Service Operations Management Theories to the Management of an Art Museum

A Study on the Implementation of Service Operations Management Theories to the Management of an Art Museum

Debate: Changing to Lean public services

We welcomed Radnor and Bateman’s (2016) call for a discipline of public service operations management to be developed. This new discipline should build on conventional operations management concept...

Estratégias de operações de serviço no setor público: um exame a partir da produção científica brasileira no período de 2004-2014

O presente artigo tem como objetivo realizar uma revisão sistemática do campo de Gestão de Operações de Serviços (GOS) no setor público, no período de 2004 a 2014, a fim de verificar as características e evolução das publicações nacionais na área. Os resultados da pesquisa foram divididos em resultados descritivos e resultados temáticos. Os descritivos buscaram responder quatro questões adaptadas do modelo proposto por Machuca et al. (2007): (A) Que variações, se houver, podem ter ocorrido no número de publicações em Operações de Serviço no setor público no decorrer dos anos? (B) Quais são os principais temas de pesquisa? (C) Que métodos são usados em pesquisas de GOS no setor público? (D) Quais são os setores de atividade mais estudados? Os resultados temáticos se basearam na classificação dos artigos segundo seu tópico focal - conteúdo ou processo - conforme apresentado por Dangayach e Deshmukh (2001) e Boyer et al. (2005). Por meio de resultados descritivos, verificou-se uma distribuição de trabalhos voltados para o setor público acompanhando as publicações gerais de GOS, tendo como principal tema abordado o planejamento, a modelagem como método mais utilizado e o setor de saúde como o mais estudado. Quanto aos resultados temáticos percebeu-se uma concentração de artigos que focam aspectos de conteúdo com perceptível destaque para as subcategorias Capacidade de Fabricação e Medida de Desempenho.

Development and Validations of a Holistic Service Operations Management Instrument

Studies in manufacturing areas have empirically indicated that good operational practices have led to superior operational performances. However, these studies have been overshadowed by manufacturing based management practices rather than services. In service operations management studies, over emphasis is being placed on service quality which is based on the customer's perceptions and expectations. Thus, there is a need to re-evaluate the approach towards the understanding of service operations management as a mechanism in achieving competitive advantage. To fill the void, this study is carried out in a service setting and is seen from the perspective of the service operations manager. The approach used in the study is both qualitative and quantitative. The procedures employed revealed six factors that are critical for the establishment of a holistic service operations management. Correlations analyses showed relatively strong relationship within the factors. Further unidimensionality, reliability and validity analysis concluded that the factors model fit well and represents a reasonably close approximation in the population. The study offers a systematic approach framework for the empirical understanding of operations management in a service setting.

Selling Off-Grid Light to Liquidity-Constrained Consumers

Problem definition: A large proportion of the world’s population has no access to electricity and so relies on noxious kerosene for their lighting needs. Solar-based solutions require a large up-front investment and are often unaffordable in this market owing to consumers’ tight liquidity constraints. As an alternative, there are business models relying on rechargeable light bulbs that are sold at a subsidized price (which renders them affordable) and require regular micropayments for recharges (which eases liquidity constraints). These bulbs provide a cheaper and healthier light source than kerosene, yet their adoption is lower than expected, and some consumers continue to use kerosene. This paper explores the potential drivers of such preferences and proposes strategies to alter them. Academic/practical relevance: Unlike most of the existing operations management literature, which focuses on the problems in developed economies, our paper studies a problem specific to the poor population. Our novel modeling approach, which incorporates several operational features of the impoverished regions, could also serve as a template for other potential modeling attempts in similar settings. Methodology: We propose a stylized consumer behavior model that accounts for—in addition to the monetary cost incurred while using a particular light source—the inconvenience cost (resulting from repeated travel to the purchase center) and blackout cost (resulting from liquidity constraints) associated with that source to explain the consumer preference for kerosene and to recommend strategies that could mitigate that preference. Results: Although kerosene lighting is more expensive than bulbs, consumers who face either high inconvenience costs or high blackout costs prefer kerosene to bulbs because the former’s flexibility, with regard to quantity, helps reduce whichever cost is dominating. At the firm level, there is an optimal bulb capacity and recharge price pair that maximizes the firm’s revenue; furthermore, a firm can reverse the preferences for kerosene by increasing the flexibility of the bulbs (e.g., by allowing partial recharges). Although strategies—such as price discounts and mobile micropayments—which alleviate liquidity constraints are not in themselves sufficient to ensure higher adoption rates, increased bulb use becomes more likely when they are combined with inconvenience-reducing strategies. Managerial implications: Our paper sheds light on the structure of the market in which firms operate by identifying the characteristics of the market segments that prefer kerosene. It also helps the firms make better decisions by evaluating the efficacy of several strategies in terms of increasing the adoption of bulbs.The online appendix is available at https://doi.org/10.1287/msom.2017.0673 .This paper has been accepted for the Manufacturing & Service Operations Management Special Issue on Value Chain Innovations in Developing Economies.

2015 M&SOM Meritorious Service Award

The continued success of Manufacturing & Service Operations Management (M&SOM) depends on the volunteer work of many professionals who take their precious time to provide careful and constructive reviews of the manuscripts submitted to the journal in a timely manner. On behalf of M&SOM, Editor-in-Chief Christopher Tang would like to express his deepest gratitude to all those who served as reviewers for the journal in 2015. Among all reviewers, some individuals have distinguished themselves by reviewing several manuscripts and with each manuscript by writing a fair, critical, and constructive review in a timely fashion. In recognition of their outstanding service provided to support the journal’s scholarly mission, M&SOM grants the 2015 Meritorious Service Award to….

Acknowledgment to Guest Editors and Reviewers (2015)

The continued success of Manufacturing & Service Operations Management(M&SOM) relies on the support of authors and reviewers. On behalf of M&SOM, I would like to express my sincere appreciation to the guest editors, associate editors, guest associate editors, and reviewers who provided expert counsel and guidance on a voluntary basis. The following list acknowledges those who served from January to December 2015. Through their efforts, the journal was able to provide submitting authors with timely, thoughtful, and constructive reviews. I hereby acknowledge their service for the journal, and gratefully appreciate their contributions for our profession. Christopher S. Tang, M&SOM Editor-in-Chief