On the design of managerial incentives for sustainability investments in the presence of competitors

In many industries, an increasing number of firm owners tie managers’ incentives to sustainability investments. Positive rewards directly increase a manager's total pay when that manager makes sustainability investments, whereas negative rewards directly decrease a manager's pay when those investments are made. Strategic incentive design literature posits that such organizational choices also affect the decisions of a firm's competitors. This paper uses a game-theoretic framework to analyze the effects of sustainability incentives in a setting with two competing firms. In contrast to the existing literature, in the current paper sustainability investments have a demand-enhancing effect and can increase or decrease the unit cost of production, making the current framework more in line with industrial practice. The results show that a firm invests in sustainability only if the demand-enhancing effects outweigh the cost-increasing effects. More importantly, positively rewarding managers for sustainability investments is done in equilibrium only if the innovation capability of the firm is sufficiently high. However, in terms of profits, those positive rewards lead to a prisoner's dilemma. When innovation capability is lower, firm owners use negative rewards and raise their profits. Another finding is that rival firms that cooperate in determining their sustainability incentives increase their profits but do so using negative rewards. These results, which have not been reported in the literature, point to some critical trade-offs in terms of sustainability investments and firm profits when sustainability incentives are considered and are both managerially and academically relevant

Collaboration in the offshore wind farm decommissioning supply chain

The purpose of this study is to explore how actors in the offshore wind farm decommissioning supply chain collaborate to manage collective uncertainties—external supply chain uncertainties shared among several supply chain actors. Semi-structured expert interviews with ten companies active in five different segments of the decommissioning supply chain in the Netherlands, Germany, and Belgium are conducted. Businesses currently utilize collaborative communication, information sharing, and joint knowledge creation to mitigate the adverse effects of collective uncertainties. However, collaboration is severely impeded by the presence of barriers such as intellectual property or the lack of resources. Nevertheless, opportunities to lower these hurdles and improve collaboration across the supply chain exist. This study contributes to the literature on collective uncertainties and supply chain collaboration in offshore wind decommissioning. Additionally, this paper provides practitioner-oriented insights to leverage supply chain collaboration in dealing with the decommissioning challenge

Managing Strategic Inventories under Investment in Process Improvement

In supplier-retailer interactions, the retailer may carry inventories strategically as a bargaining mechanism to induce the supplier to drop the future wholesale price. As per Anand, Anupindi, and Bassok (2008), the introduction of strategic inventories always benefits the supplier and possibly also the retailer if the holding cost is sufficiently low (due to the contract-space-expansion effect). Is such a move beneficial for the supply chain agents in the presence of process improvement efforts? Such efforts—initiated by suppliers—ultimately reduce production cost and may translate into lower wholesale prices as well as lower consumer prices. We find that strategic inventories may stimulate investment in process improvement when the holding cost is high (as it encourages the supplier to further reduce future cost to eliminate the need for strategic inventories), but may suppress such investment when the holding cost is low (as strategic inventories are cheap to stock and hence cannot be eliminated). Our key result, contrary to the existing literature, is that strategic inventories may be harmful to both supply chain agents in the presence of process improvement. In that case, the supplier effectively over-invests in process improvement efforts, inducing the retailer to reduce the stock of strategic inventories, while reversing the benefits of the contract-space-expansion effect. We also consider variations to the model, whereby the supplier may delay his investment decision, the holding cost may be a function of the wholesale price set by the supplier, consumers may behave strategically, and the planning horizon may consist of multiple periods

Joint Condition-based Maintenance and Condition-based Production Optimization

Developments in sensor equipment and the Internet of Things increasingly allow production facilities to be monitored and controlled remotely and in real-time. Organizations can exploit these opportunities to reduce costs by employing condition-based maintenance (CBM) policies. Another recently proposed option is to adopt condition-based production (CBP) policies that control the deterioration of equipment remotely and in real-time by dynamically adapting the production rate. This study compares their relative performance and introduces a fully dynamic condition-based maintenance and production (CBMP) policy that integrates both policies. Numerical results show that the cost-effectiveness of the policies strongly depends on system characteristics such as the planning time for maintenance, the cost of corrective maintenance, and the rate and volatility of the deterioration process. Integrating condition-based production decisions into a condition-based maintenance policy substantially reduces the failure risk, while fewer maintenance actions are performed. Interestingly, in some situations, the combination of condition-dependent production and maintenance even yields higher cost savings than the sum of their separate cost savings. Moreover, particularly condition-based production is able to cope with incorrect specifications of the deterioration process. Overall, there is much to be gained by making the production rate condition-dependent, also, and sometimes even more so, if maintenance is already condition-based. These insights provide managerial guidance in selecting CBM, CBP, or the fully flexible CBMP policy