Monday, March 21, 2011

INSEAD Working Paper 2011/35/TOM

This paper analyzes the optimal procurement, processing and production decisions of a meat processing company (hereafter a "packer") in a beef supply chain. The packer processes fed cattle to produce two beef products, program (premium) boxed beef and commodity boxed beef, in fixed proportions, but with downward substitution of the premium product for the commodity product. The packer can source input (fed cattle) from a contract market, where long-term contracts are signed in advance of the required delivery time, and from a spot market on the spot day. Contract prices are taken to be of a general window form, linear in the spot price but capped by upper and lower limits on realized contract price. Our analysis provides managerial insights on the interaction of window contract terms with processing options. We show that the packer benefits from a low correlation between the spot price and product market uncertainties, and this is independent of the form of the window contract. Although the expected revenues from processing increase in spot price variability, the overall impact on profitability depends on the parameters of the window contract. Using a calibration based on the GIPSA (Grain Inspection, Packers and Stockyards Administration) Report (2007), this paper elucidates for the first time the value of long-term contracting as a complement to spot sourcing in the beef supply chain. Our comparative statics results provide some rules of thumb for the packer for the strategic management of the procurement portfolio. In particular, we show that higher variability (higher spot price variability, product market variability and correlation) increases the profits of the packer, but decreases reliance on the contract market relative to the spot market.

INSEAD Working Paper 2011/40/TOM

We study the impact of collaboration on the adoption of electric vehicles (EVs) among commercial fleets. Using cooperative game theory, we characterize the joint payoffs for the primary stakeholders in the EV adoption decision - the fleet manager, auto manufacturer, and electricity supplier - to determine the conditions under which EVs become economically feasible for commercial fleets. We do so in two settings. We first analyze a scenario where all three stakeholders cooperate in the EV adoption decision, a setting pertinent in regions such as France where a national electricity supplier makes such an arrangement feasible. We next analyze a scenario where the fleet manager and auto manufacturer cooperate but the electricity supplier participates as an independent actor, a setting pertinent in regions such as the United States where no single electricity supplier possesses sufficient market scope to become involved in the EV decision on a national scale. Comparing the regions of EV adoption in these two settings provides insights into the value of the electricity supplier's cooperation and the conditions under which intermediation to promote such cooperation can add value. Given the emissions mitigation potential resulting from EV adoption and the central role of ground transport in distribution, this research contributes to the broader study of sustainable operations.

INSEAD Working Paper 2011/43/TOM

As policy makers and researchers have acknowledged, there are inherent tensions between maintaining a Universal Service Obligation (USO) combined with full market opening (FMO). These tensions are exacerbated by serious intermodal competition in the form of electronic substitution for both advertising and transactions mail and were examined in Crew and Kleindorfer (2011). C-K demonstrated that retaining volumes by the USP is fundamental to retaining economies of scale in delivery, which are essential aspects of both the USO and remaining financially viable.