IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v49y2003i12p1653-1670.html
   My bibliography  Save this article

Measuring Imputed Cost in the Semiconductor Equipment Supply Chain

Author

Listed:
  • Morris A. Cohen

    (Operations and Information Management Department, The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104)

  • Teck H. Ho

    (Marketing Group, Haas School of Business, University of California, Berkeley, California 94720)

  • Z. Justin Ren

    (Operations and Technology Management Department, School of Management, Boston University, Boston, Massachusetts 02215)

  • Christian Terwiesch

    (Operations and Information Management Department, The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104)

Abstract

We consider the order-fulfillment process of a supplier producing a customized capital good, such as production equipment, commercial aircraft, medical devices, or defense systems. As is common in these industries, prior to receiving a firm purchase order from the customer, the supplier receives a series of shared forecasts, which are called "soft orders." Facing a stochastic internal manufacturing lead time, the supplier must decide at what time to begin the fulfillment of the order. This decision requires a trade-off between starting too early, leading to potential holding or cancellation costs, and starting too late, leading to potential delay costs. We collect detailed data of shared forecasts, actual purchase orders, production lead times, and delivery dates for a supplier-buyer dyad in the semiconductor equipment supply chain. Under the assumption that the supplier acts rationally, optimally balancing the cancellation, holding, and delay costs, we are able to estimate the corresponding imputed cost parameters based on the observed data. Our estimation results reveal that the supplier perceives the cost of cancellation to be about two times higher and the holding costs to be about three times higher than the delay cost. In other words, the supplier is very conservative when commencing the order fulfillment, which undermines the effectiveness of the overall forecast-sharing mechanism.

Suggested Citation

  • Morris A. Cohen & Teck H. Ho & Z. Justin Ren & Christian Terwiesch, 2003. "Measuring Imputed Cost in the Semiconductor Equipment Supply Chain," Management Science, INFORMS, vol. 49(12), pages 1653-1670, December.
  • Handle: RePEc:inm:ormnsc:v:49:y:2003:i:12:p:1653-1670
    DOI: 10.1287/mnsc.49.12.1653.25115
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/mnsc.49.12.1653.25115
    Download Restriction: no

    File URL: https://libkey.io/10.1287/mnsc.49.12.1653.25115?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Gérard P. Cachon & Martin A. Lariviere, 2001. "Contracting to Assure Supply: How to Share Demand Forecasts in a Supply Chain," Management Science, INFORMS, vol. 47(5), pages 629-646, May.
    2. Hau L. Lee & V. Padmanabhan & Seungjin Whang, 1997. "Information Distortion in a Supply Chain: The Bullwhip Effect," Management Science, INFORMS, vol. 43(4), pages 546-558, April.
    3. Morris A. Cohen & Jehoshua Eliasberg & Teck-Hua Ho, 1996. "New Product Development: The Performance and Time-to-Market Tradeoff," Management Science, INFORMS, vol. 42(2), pages 173-186, February.
    4. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
    5. Izak Duenyas, 1995. "Single Facility Due Date Setting with Multiple Customer Classes," Management Science, INFORMS, vol. 41(4), pages 608-619, April.
    6. Christoph H. Loch & Christian Terwiesch, 1998. "Communication and Uncertainty in Concurrent Engineering," Management Science, INFORMS, vol. 44(8), pages 1032-1048, August.
    7. Viswanathan Krishnan & Steven D. Eppinger & Daniel E. Whitney, 1997. "A Model-Based Framework to Overlap Product Development Activities," Management Science, INFORMS, vol. 43(4), pages 437-451, April.
    8. Christian Terwiesch & Christoph H. Loch & Arnoud De Meyer, 2002. "Exchanging Preliminary Information in Concurrent Engineering: Alternative Coordination Strategies," Organization Science, INFORMS, vol. 13(4), pages 402-419, August.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Christian Terwiesch & Z. Justin Ren & Teck H. Ho & Morris A. Cohen, 2005. "An Empirical Analysis of Forecast Sharing in the Semiconductor Equipment Supply Chain," Management Science, INFORMS, vol. 51(2), pages 208-220, February.
    2. Susan Bogus & Keith Molenaar & James Diekmann, 2006. "Strategies for overlapping dependent design activities," Construction Management and Economics, Taylor & Francis Journals, vol. 24(8), pages 829-837.
    3. Joglekar, Nitindra R., 2003. "Performance of coupled product development activities with a deadline," Working papers WP 4122-00., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    4. Gülru F. Özkan-Seely & Cheryl Gaimon & Stylianos Kavadias, 2015. "Dynamic Knowledge Transfer and Knowledge Development for Product and Process Design Teams," Manufacturing & Service Operations Management, INFORMS, vol. 17(2), pages 177-190, May.
    5. Nitindra R. Joglekar & Ali A. Yassine & Steven D. Eppinger & Daniel E. Whitney, 2001. "Performance of Coupled Product Development Activities with a Deadline," Management Science, INFORMS, vol. 47(12), pages 1605-1620, December.
    6. Indranil R. Bardhan & Vish V. Krishnan & Shu Lin, 2007. "Project Performance and the Enabling Role of Information Technology: An Exploratory Study on the Role of Alignment," Manufacturing & Service Operations Management, INFORMS, vol. 9(4), pages 579-595, May.
    7. Qian, Yanjun & Xie, Min & Goh, Thong Ngee & Lin, Jun, 2010. "Optimal testing strategies in overlapped design process," European Journal of Operational Research, Elsevier, vol. 206(1), pages 131-143, October.
    8. Victoria L. Mitchell & Barrie R. Nault, 2007. "Cooperative Planning, Uncertainty, and Managerial Control in Concurrent Design," Management Science, INFORMS, vol. 53(3), pages 375-389, March.
    9. V. Krishnan & Karl T. Ulrich, 2001. "Product Development Decisions: A Review of the Literature," Management Science, INFORMS, vol. 47(1), pages 1-21, January.
    10. Paulo J. Gomes & Nitin R. Joglekar, 2008. "Linking modularity with problem solving and coordination efforts," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 29(5), pages 443-457.
    11. Glen M. Schmidt & Evan L. Porteus, 2000. "Sustaining Technology Leadership Can Require Both Cost Competence and Innovative Competence," Manufacturing & Service Operations Management, INFORMS, vol. 2(1), pages 1-18, March.
    12. Lin, Jun & Chai, Kah Hin & Brombacher, Aarnout C. & Wong, Yoke San, 2009. "Optimal overlapping and functional interaction in product development," European Journal of Operational Research, Elsevier, vol. 196(3), pages 1158-1169, August.
    13. Jürgen Mihm & Christoph Loch & Arnd Huchzermeier, 2003. "Problem--Solving Oscillations in Complex Engineering Projects," Management Science, INFORMS, vol. 49(6), pages 733-750, June.
    14. Cheryl Gaimon & Manpreet Hora & Karthik Ramachandran, 2017. "Towards Building Multidisciplinary Knowledge on Management of Technology: An Introduction to the Special Issue," Production and Operations Management, Production and Operations Management Society, vol. 26(4), pages 567-578, April.
    15. Lin, Jun & Qian, Yanjun & Cui, Wentian & Miao, Zhanli, 2010. "Overlapping and communication policies in product development," European Journal of Operational Research, Elsevier, vol. 201(3), pages 737-750, March.
    16. Rauniar, Rupak & Doll, William & Rawski, Greg & Hong, Paul, 2008. "Shared knowledge and product design glitches in integrated product development," International Journal of Production Economics, Elsevier, vol. 114(2), pages 723-736, August.
    17. Yassine, Ali A. & Sreenivas, Ramavarapu S. & Zhu, Jian, 2008. "Managing the exchange of information in product development," European Journal of Operational Research, Elsevier, vol. 184(1), pages 311-326, January.
    18. Manuel E. Sosa & Steven D. Eppinger & Craig M. Rowles, 2004. "The Misalignment of Product Architecture and Organizational Structure in Complex Product Development," Management Science, INFORMS, vol. 50(12), pages 1674-1689, December.
    19. Rich, Karl M. & Ross, R. Brent & Baker, A. Derek & Negassa, Asfaw, 2011. "Quantifying value chain analysis in the context of livestock systems in developing countries," Food Policy, Elsevier, vol. 36(2), pages 214-222, April.
    20. Christian Terwiesch & Christoph H. Loch, 1999. "Measuring the Effectiveness of Overlapping Development Activities," Management Science, INFORMS, vol. 45(4), pages 455-465, April.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:49:y:2003:i:12:p:1653-1670. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.