Information Services in the U.S. Economy: Value, Jobs and Management Implications. U.M. Apte, U.S. Karmarkar, H.K. Nath. California Management Review. (50)3: 12-30. Spring 2008.
The article reports on the outlook for growth in information services in the United States and calculates the wage bills for information and material workers in the two broad categories of product and service industries. The study is based on the distribution of gross national product in four supersectors--products versus services and information versus material--during 1967, 1992, and 1997. Occupations and sectors are classified in terms of market transaction or delivery form, tangible or intangible form, or the production process. Data includes the number of material and information workers in the employment and wage bill for 1999. Factors contributing to trends in the service economy, five differences in the material/information dichotomy, and management strategies are mentioned.
Operations Management in the Information Economy: Information Products, Processes, and Chains. U.S. Karmarkar, U.M. Apte. Journal of Operations Management. 25(2): 438-453. March 2007.
The process of economic evolution from agriculture to manufacturing to services is nearing its end in the U.S. and other developed economies. Another major evolution along a different dimension is now underway: it is from a material-based economy to an information-based economy. In the past, the product–service dichotomy has proved useful as an organizing principle for the study of operations management. Today, however, a material–information categorization of products and services appears to be equally important and useful. The information sector now comprises the major share of the U.S. private economy and includes many of the largest industrial sectors and firms. We discuss the implications of this evolution for research and teaching in operations management (OM).
The basic questions addressed here are: In what ways are information products, services, processes and chains similar to, or different from, those in the material world? To what extent is it possible to manage operations in information industries using the existing operations management concepts and techniques? The conclusions are mixed. To a great extent, traditional concepts are indeed applicable and useful. However, there are significant differences. For example, quantification and measurement pose a fundamental problem in the study of information industries. As a result, there are difficulties in analyzing some of the most basic OM issues related to productivity, cost, value, and transformation. Nevertheless, the process-centric methods of operations management can be quite effective in analyzing firms and industries that produce information goods and services. An understanding of process economics and information chains is also central to the analysis of competition given the impact of new technologies on processes, firms, information chains and information industries. We conclude that while there is much in the information sector that can be addressed with our current toolkit, some very interesting and challenging issues still remain open for research. From the perspective of management education too, operations management in the information economy is an area of growing importance, with some easy wins and some significant challenges.
Aggregate Production Planning for Process Industries under Oligopolistic Competition. U.S. Karmarkar, K. Rajaram. European Journal of Operational Research. 223(3): 680-689. December 2012.
We consider a competitive version of the traditional aggregate production planning model with capacity constraints. In the general case, multiple products are produced by a few competing producers (oligopoly) with limited capacities. Production quantities, prices and consequently profits depend on production and allocation decisions of each producer. In addition, there is competition for the raw material whose supplies are limited, and where prices reflect these limitations. Such situations have recently occurred in several process industry settings including petro-refining, petrochemicals, basic chemicals, cement, fertilizers, pharmaceuticals, rubber, paper, food processing and metals. We use a successive “Bertrand-Cournot” framework to address this problem and to determine optimal production quantities, prices and profits at the producers and at the raw material supplier. Our analysis allows a new way to understand and evaluate the marginal value of additional capacity when there is competition for the market and raw materials.
Buffer Sizing in Multi-Product Multi-Reactor Batch Processes: Impact of Allocation and Campaign Sizing Policies. I.V. Nieuwenhuyse, N. Vandaele, K. Rajaram, U.S. Karmarkar. European Journal of Operational Research. 179(2): 424-443. June 2007.
This paper studies the impact of management policies, such as product allocation and campaign sizing, on the required size of the finished goods inventories in a multi-product multi-reactor batch process. Demand, setup and batch processing times for these products are assumed to be stochastic, and the inventory buffer for every product type needs to be such that target customer service levels are met. To perform this analysis, we develop a queueing model that allows us to explicitly estimate service levels as a function of the buffer size, and the allocation/campaign sizing policies. This model can be used to evaluate the service level given an existing buffer configuration, as well as to determine the buffer sizes required across products to meet a pre-specified service level. It also allows us to formulate a number of insights into how product allocation decisions and campaign planning policies affect buffer sizing decisions in symmetric production systems.
Service Design, Competition and Market Segmentation in Business Information Services. B. Anant, U.S. Karmarkar. 2005.
Business information services are intermediaries that collect, collate, package and distribute information of value to professional users. We consider two technologies that such intermediaries may use for delivering information. First, a packaged design that uses physical media like CD-ROMs to distribute information. Second, an online service that delivers such information via the Internet or other online networks. We model a market where subscribers may choose between "self-service", where they collect and collate information directly from sources, and a third party service provider who provides either a packaged design or an online service. Subscribers are indexed by their volume of usage for the service. In a duopoly, we show that providers with online or package technologies will serve different market segments. The package provider’s limited ability to provide current information, combined with decreasing search costs in an online service will make a package provider increasingly vulnerable to being driven out of the market by the online provider.
Competition in Multi-echelon Assembly Supply Chains. S.C. Carr, U.S. Karmarkar. Management Science. 51(1): 45-59. January 2005.
In this paper, we study competition in multiechelon supply chains with an assembly structure. Firms in the supply chain are grouped into homogenous sectors (nodes) that contain identical firms with identical production capabilities that all produce exactly one undifferentiated product (that may itself be a "kit" of components). Each sector may use several inputs to produce its product, and these inputs are supplied by different sectors. The production process within any sector is taken to be pure assembly in fixed proportions. The number of firms in each sector is known. The demand curve for the final product is assumed to be linear, as are production costs in all sectors. Competition is modeled via a "coordinated successive Cournot" model in which firms choose production quantities for their downstream market so as to maximize profits, given prices for all inputs and all complementary products. Production quantities for sectors supplying the same successor are coordinated through pricing mechanisms, so that complementary products are produced in the right proportions. Under these assumptions, equilibrium prices for any multiechelon assembly network are characterized by a system of linear equations. We derive closed-form expressions for equilibrium quantities and prices in any two-stage system (i.e., a system with multiple input sectors and a single assembly sector). We show that any assembly structure can be converted to an equivalent (larger) structure in which no more than two components are assembled at any node. Finally, large structures can be solved either by direct solution of the characteristic linear equations or through an iterative reduction (compression) to smaller structures.
Will You Survive the Services Revolution? U.S. Karmarkar. Harvard Business Review 82(6): 100-107. June 2004.
Articles about offshoring lament the movement of labor to foreign countries, and outsourcing headlines decry the loss of middleclass jobs to contractors. The articles have been conflated to suggest that a corporate cabal bent on "exporting America" has handed high-paying, white-collar American jobs to well-trained but less expensive workers in India and other locales. Service jobs are at risk in all developed countries. The real issue then is the loss of service competitiveness. In this article, I will suggest specific ways that companies can prepare themselves for the dramatic changes ahead. In a prescient study done for the World Bank using employment data from 1990, Uday Apte of Southern Methodist University estimated that about 10 percent of American service sector jobs had the potential to be outsourced, moved offshore, or automated. As technology turns information services into industrialized components on an assembly line, jobs will become ripe for the plucking by global competition and offshore outsourcing. Companies that spend time and money in understanding customer preferences and developing specific services for niche customers will do well. Firms should find ways to serve growing but neglected populations. Reorganization of processes necessitates organizational change.
The Marketing/Manufacturing Interface: Strategic Issues. U.S. Karmarkar, M.M. Lele. Managing Business Interfaces: Marketing, Engineering, and Manufacturing Perspectives. A. Chakravarty, J. Eliashberg (Eds.). Kluwer Academic Publishers. 2004.
Most firms separate the marketing and manufacturing functions into distinct organizational groups without fully considering the interactions and conflicts between the two functions. These interactions can have very significant costs for the firm, if they are not recognized. We discuss situations in which strategy and policy in the two areas are not synchronized. They include issues such as capacity decisions, inventory deployment and location in manufacturing; and price-promotion policy, forecasting and market intelligence in marketing. These topics are discussed in the context of case examples, which illustrate problems that can arise when interactions are not recognized.
Competitive Location, Production, and Market Selection. U.S. Karmarkar, H. Rhim, T. Ho. European Journal of Operational Research. 149(1): 211-228. August 2003.
This paper investigates how firms should select their production sites, capacities and quantities under rivalry. There are assumed to be a finite number of discrete potential location sites and a finite number of discrete markets, which may or may not coincide. Firms first decide either simultaneously or sequentially whether and where to establish a production site. The fixed cost of opening a facility and the marginal cost of production both depend on where the facility is located. Firms then choose capacity and a production quantity for each market. Prices in each market are determined by the total quantity available at that location via the Cournot mechanism. This formulation thus addresses multi-market, oligopolistic spatial competition with heterogeneity in production and logistics costs.
We then analyze the Nash equilibria of the entry game and provide sufficient conditions for the existence of equilibria in the simultaneous entry game. At equilibrium, firms may not produce for all markets and may have limited market areas; however, these areas may overlap, so that there are multiple suppliers in any market. In general, there may not be a first mover advantage and early entrants may earn lower profits than later entrants.
Product Cycling with Uncertain Yields: Analysis and Application to the Process Industry. U.S. Karmarkar, K. Rajaram. Operations Research. 50(4): 680-691. July-August 2002.
We formulate the dynamic product cycling problem with yield uncertainty and buffer limits to determine which product to produce at which times to minimize total expected switching, production, inventory storage and backorder costs. A “restricted” Lagrangian technique is used to develop a lower bound and a model-based Lagrangian heuristic. We also develop an operational heuristic and a greedy heuristic. The operational heuristic has been implemented at seven refineries at Cerestar, Europe's leading manufacturer of wheat and starch-based products in the food processing industry. This has already reduced costs by around 5% or $3 million annually at these sites. Tests of the Lagrangian heuristic on data from these refineries during this period has shown the potential to further reduce total costs by at least 2% or about $1 million. In addition, the Lagrangian heuristic has provided an objective basis to evaluate the economic impact of several strategic decisions involving issues such as buffer expansion, variability reduction and product selection.
Competition and Structure in Serial Supply Chains with Deterministic Demand. C.J. Corbett, U.S. Karmarkar. Management Science. 47(7): 966-978. July 2001.
Supply chains often consist of several tiers, with different numbers of firms competing at each tier. A major determinant of the structure of supply chains is the cost structure associated with the underlying manufacturing process. In this paper, the impact of fixed and variable costs on the structure and competitiveness of supply chains with a serial structure and price-sensitive linear deterministic demand is examined. The entry stage is modeled as a simultaneous game, where the players take the outcomes of the subsequent post-entry competition into account in making their entry decisions. Altogether, this paper provides a framework for comparing a variety of supply-chain structures and for studying how they are affected by costs structures and by the number of entrants throughout the chain.
Grade Selection and Blending to Optimize Quality and Cost. U.S. Karmarkar, K. Rajaram. Operations Research. 49(2): 1-10. March-April 2001.
In many chemical process applications, a large mix of products is produced by blending them from a much smaller set of basic grades. The basic grades themselves are typically produced on the same process equipment and inventoried in batches. Decisions that arise in this process include selecting the set of basic grades, determining how much of each basic grade to produce, and how to blend basic grades to meet final product demand. We model this problem as a nonlinear mixed-integer program, which minimizes total grade inclusion, batching, blending, and quality costs subject to meeting quality and demand constraints for these products. Heuristics and lower bounds are developed and tested. The methods are applied to data from Europe's leading manufacturer of wheat- and starch-based products. Our results suggest that this model could potentially reduce annual costs by a minimum of 7%, translates to annual savings of around $5 million.
Financial Service Networks: Access, Cost Structure and Competition. U.S. Karmarkar. Creating Value in Financial Services. E. Melnick, P. Nayyar, M. Pinedo and S. Seshadri (eds.). Kluwer. 2000.
Access is a key aspect of competition in financial service markets. New technologies for information collection and distribution are altering the costs and value structures associated with access to information intensive services. As a result, we are seeing significant changes in the configuration of service systems, and in industry structure as well. This paper discusses the role of access in service competition, and the effect of technology changes on access, location and configuration. There are collateral effects on localization, differentiation and costs of entry which in turn have implications for intensity of competition and profitability. These effects are most visible today in transaction intensive financial services such as retail banking and brokerage. They will increasingly affect all financial services and indeed all information based industry sectors. We discuss the possible evolution of such financial service networks, and the strategies that could be adopted to deal with the transitions that have to be made.
Quality Management in Services: Analysis and Applications. U. Apte, U.S. Karmarkar, R. Pitbladdo. The Practice of Quality Management. P.J. Lederer, U.S. Karmarkar. Kluwer. February 1997.
The production and delivery of services differ in significant ways from manufacturing. These differences require that quality in services be managed in different manners. Based on an analysis of a large set of case studies, we develop a new framework for quality measurement and management in service.
Quality, Class and Competition. U.S. Karmarkar, R. Pitbladdo. Management Science. 43(1): 27-39. January 1997.
The process-oriented view of quality in manufacturing is integrated with the multi-attribute product positioning and customer preference models of marketing, within the context of traditional economic models of markets and competition. The model clarifies the distinction between product class and conformance quality, identifies the sources of quality improvement and provides an economic framework relating issues like product positioning, process improvement, quality function deployment and customer preference estimation. The framework is used to address issues such as quality costs and benefits and the economics of investments in quality.
Integrative Research in Marketing and Operations Management. U.S. Karmarkar. Journal of Marketing Research. Invited Editorial. 33(2): 125-133. May 1996.
Although previously the realities of management practice channeled academic research from disciplines into functional areas, it is important to consider what research efforts can contribute to a more cross-functional view of the business world. The integration of marketing and operations management is examined.
Material Allocation in MRP with Tardiness Penalties. U.S. Karmarkar, R.S. Nambimadom. Journal of Global Optimization. 9(3-4): 453-482. 1996.
In this paper, we address some flaws in the material allocation function of Materials Requirements Planning (MRP). The problem formulation differs from standard MRP logic in certain important ways; start and finish times for orders are forced to be realistic and material allocations are made to minimize the total tardiness penalty associated with late completion. We show that the resulting MRP material allocation problem is NP-hard in the strong sense. A lower bound and a heuristic are developed from a mixed integer linear formulation and its Lagrangean relaxation. The lower bound and the heuristics are closer to the optimum in cases where there is either abundant material or considerable competition for material; in intermediate cases, small perturbations in material allocation can have a significant effect. A group of heuristics based on the MRP approach and its modifications is examined; they are optimal under certain conditions. An improvement method that preserves priorities inherent in any given starting solution is also presented. The Lagrangean heuristic performs better than the MRP based heuristics for a set of 3900 small problems, yielding solutions that are about 5% to 10% over the optimal. The best MRP based heuristic does about as well as the Lagrangean heuristic on a set of 120 larger problems, and is 25% to 40% better than the standard MRP approach, on the data sets tested.
Computer Integrated Manufacturing: Empirical Implications for Industrial Information Systems. J. Johansen, U.S. Karmarkar, N. Dhananjay, A. Seidmann. Journal of Management Information Systems. 12(2): 59-82. Fall 1995.
This paper describes the results of a recent field study of computer integrated manufacturing (CIM) adoption strategies in U.S. manufacturing firms. The purpose of the study was to identify the extent to which CIM technologies are in use in U.S. firms, the impact of a facility's process characteristics on the CIM development process, and the adoption policy being followed implicitly or explicitly. The survey focused on manufacturing process characteristics, the CIM development process, the CIM architecture, and perceived value and benefits. Our results indicate that CIM implementations follow a definite temporal pattern with respect to the adoption of certain information technologies. We also find evidence of labor substitution through CIM, although the direct labor jobs that are lost are partially replaced by engineering and design tasks. While most CIM users find that their CIM projects successfully meet their initial operational goals, the technology seems to be poorly integrated in most sites. More crucially, it appears that CIM does not live up to its promise: it is not being adopted as a strategic information system for competitive missions. The initiative for CIM programs is usually generated from the bottom-up by small groups of technical experts who tend to focus localized data-processing concerns. This gradual bottom-up approach appears to severely restrain, rather than enable, plant-wide integration for critical cross-functional business processes such as order fulfillment or the introduction of new products. The decentralized, bottom-up, development pattern of these information systems reinforces the existence of many incompatible divisional islands of automation, thereby negatively affecting the competitive capability of the firm.
Service Markets and Competition. U.S. Karmarkar, R. Pitbladdo. Journal of Operations Management. 12(3-4): 397-411. June 1995.
The production and delivery of services differ from manufacturing in ways which have a significant impact on the nature of market competition. Contracts for manufactured goods are centered around a clearly defined junction between production and use, made possible by the properties of tangibility and portability of tangible goods, at which point responsibility for use, operation and consumption of the product is transferred from producer to customer, along with ownership. Service operations involve a lack of inventories, and portability, customer contact, joint production, customer-specific inputs, and intangibility in varying degrees. A framework for describing, analyzing, and explaining service competition is provided, and old and new models are reviewed which address the special features of service markets.
Business Experience with Computer Integrated Manufacturing: A Survey of Current Strategy and Practice. J. Johansen, U.S. Karmarkar, D. Nanda, A. Seidmann. Proceedings of HICSS 95. 970-979. 1995.
Recent experience suggests that many reengineering efforts fail, and that they fail for reasons unrelated to the technical ability of organizations to implement information systems. Our research suggests that the two principal reasons for failure are functionality risk and political risk, respectively, the organization's inability to understand its uncertain future strategic needs, and its inability to make painful and difficult changes in response to these future strategic needs. Recent research in the organizational change literature suggests that these risks are the result of conflict among the organization's current strategy, its espoused degree of change, the actually accepted and generally smaller degree of change, and the generally larger degree of change that would be in some sense optimal. Moreover, the conflicts among these may be unperceived or not discussable within the organization, exacerbating the risks. We summarize in a few testable hypotheses our experience with managing the risks of reengineering, and use a small set of representative case studies to examine these hypotheses informally.
Getting Control of Just-in-Time. U.S. Karmarkar. Harvard Business Review. 67(5): 122-131. September-October 1989. [Reprinted in Manufacturing Renaissance. G. Pisano, R. Hayes (eds.). Harvard Business Press. 1995.]
The basic difference between pull and push is that a pull system begins production as a reaction to present demand, while push begins production in anticipation of future demand. Just in time (JIT) is a statement of objectives underscoring the importance of lead-time management in all parts of manufacturing. Neither push nor pull has anything to do with JIT directly. JIT tries to manage lead times and eliminate waste. Material requirements planning (MRP) mandates building to the scheduled delivery of the final product. Materials resource planning (MRP II) begins production of various components, releases orders, and offsets inventory reductions. MRP does not conflict with JIT, but it must assume a fixed production environment with fixed lead times. The kanban method overcomes the deficiencies of MRP. Kanban combines production control with inventory control. This method works best when there is a uniform flow; it does not plan well. The best solution is often a hybrid that uses the strengths of push and pull approaches. There are several modifications of existing MRP II systems that add pull elements and remove some problems connected with lack of responsiveness.
Large Scale Shop Scheduling: Formulations & Decomposition. G. Dobson, U.S. Karmarkar. Optimization Models and Concepts in Production Management. A. Villa, P. Brandimarte (eds.). Gordon and Breach, Basel. 1995.
Large scale scheduling problems in repetitive batch and custom manufacturing are extremely difficult to solve. Integer programming formulations of the problem with different objectives, are presented. Lagrangean decomposition is used to derive more tractable sub-problems at the machine or work center level; most of the sub-problems involve weighted flow time minimization. The sub-problems can be analyzed to provide heuristics and qualitative insights. Issues in modeling important aspects of real problems are discussed and the results of recent research are reviewed.
A Robust Forecasting Technique for Inventory and Lead-time Management. U.S. Karmarkar. Journal of Operations Management. 12(1): 45-54. October 1994.
Inventory stocking problems with stochastic demand typically involve an estimate of the location of some fractile of the demand distribution, where the fractile is usually in the 0.8 to 0.99 range. This fractile is called the service level and is the probability that demands will be satisfied from stock on hand. The conventional approach of using the normal model to estimate this location can sometimes be misleading since it primarily uses information about the center of the distribution to predict behavior in the tail of the distribution. A new method based on a mixture model is proposed for estimating the location of the appropriate fractile directly. A formal Bayesian approach is derived and heuristic smoothing methods are developed. Simulation is used to evaluate the methods. The estimate obtained is biased in general but robust in the sense that it works well for a variety of distributions. The performance of this method appears to be superior to the conventional method.