IIT Madras is a public technical and research university located in Chennai, Tamil Nadu. Founded in 1959, it is recognised as an Institute of National Importance.

IIT Madras has been ranked as the top engineering institute in India for four years in a row by the National Institutional Ranking Framework of the MHRD

It currently offers undergraduate, postgraduate and research degrees across 16 disciplines in Engineering, Sciences, Humanities and Management. About 596 faculty belonging to science and engineering departments and centres of the Institute are engaged in teaching, research and industrial consultancy.

IIT Madras

The literature on decision biases in the newsvendor model assumes classical version of the problem where the distribution of random demand is known. This context is decision-making under risk. In many real-life settings, firms are not able to elicit complete and exact information about the demand distribution. This results in decision-making under ambiguity. We examine the newsvendor ordering preferences under ambiguity. Our study is the first attempt in behavioural operations management research to examine the biases in newsvendor decisions under ambiguity. We design experiments to understand the ordering preferences under ambiguity and risk. The experimental results show that subjects deviate from the normative benchmarks. We observe ‘pull-to-center’ bias in newsvendor decisions under ambiguity. We also observe that subjects exhibit ‘asymmetry in ordering’. Both these biases have significant implications for both theory and practice. Our research is a building block for research in a variety of normative models in operations management literature where ambiguity in demand is a highly relevant context for decision-making.&nbsp;

Department of Management Studies

World University root node

International Journal of Production Research

An experimental investigation of newsvendor decisions under ambiguity

The insufficiency of primary lead sources to satisfy the demand makes the recycling of used batteries necessary. This study quantitatively assesses the impact of different policy instruments on reducing lead pollution from lead-acid battery (LAB) recycling. We develop a system dynamics model to analyze the dynamics of LAB recycling considering remanufactures and recyclers spanning formal and informal sectors in the Indian context. We model the competition between the formal and informal sectors in both recycling and remanufacturing settings in the lead recovery process. We test our model with the data from the Indian automobile LAB recycling and investigate the impact of policy decisions on the performance of the automobile LAB recycling. This study explores three policies in anticipation of improving the efficiency of the recycling process—(i) reduce tax on regulated recyclers, (ii) offer subsidy to regulated recyclers, and (iii) offer subsidy to formal battery remanufactures. Our results show that the first two policies help the business shift from informal to formal sector which results in lowering the lead pollution. We observe that providing subsidy on formal battery can reduce the amount of lead excretion; however, a very high subsidy can lead to the shutting down of both regulated and unregulated recycling sectors. © 2021

Resources, Conservation and Recycling

Impact of policy instruments on lead-acid battery recycling: A system dynamics approach

End-of-life vehicle (ELV) recycling markets in emerging economies are characterized by the existence of plenty of informal dismantlers and a few formal dismantlers. The nature of these markets can be characterized as oligopsony markets, where few buyers (dismantlers) compete to purchase ELVs from a large number of sellers (ELV owners). High initial investment creates a barrier to entry and exit for formal dismantlers, whereas the perfectly competitive nature of the informal dismantling market enables free entry and exit of informal dismantlers. In this paper, we consider a market with one formal dismantler and few homogeneous informal dismantlers, and the dismantlers compete by offering a higher price for ELVs. We develop a system dynamics model to capture the feedback effects of competition in the ELV recycling market where the increase in the price of ELV reduces the profitability of dismantlers, which affects the future price increase of ELV and leads to the exit of informal dismantlers. This, in turn, creates fluctuations in dismantling quantities and scrap supplies leading to fluctuations in scrap prices. Using Indian data, the simulation results show that the competition leads to the higher market price for ELV, but a lower profit for dismantlers and reduced aggregate dismantling capacity due to the exit of informal dismantlers. The market price of ELV will rise by more than 200% in 10 years, whereas the existing informal dismantling capacity reduces to less than 50% during the same period. The higher capacities of the formal dismantler lead to the rapid exit of informal dismantlers thereby diminishing the effects of competition resulting in the lower market price for ELV. From our analysis, we recommend that establishing formal dismantling units with high capacities and vertical integration of vehicle manufacturers and end-of-life management systems aligned with suitable policy instruments will ensure more environmentally sound recycling. © 2020 Institution of Chemical Engineers

Fulltext

Sustainable Production and Consumption

Modeling oligopsony market for end-of-life vehicle recycling

It is indeed a real pleasure to announce the publication of this special issue, Sustainable Operation in Manufacturing Enterprise (SOME), for Annals of Operations Research. Overall , many papers were received for this special issue, and based on reviewer reports the best papers are included in this issue. This special issue is focused primarily on the three sustainable aspects, 3Ps of sustainability: proit, planet, and people. The accepted papers focus on sustainability, circular economy, mutli-criteria decision making (MCDM), optimization modelling using mixed integer linear/non-linear program (MLP/MINLP), and data envel-opment analysis (DEA) having some applications to industry and society were considered. A special thanks goes to all the authors and to the learned reviewers for their tireless eforts in providing constructive and useful feedback that helped in making decisions on the papers. On behalf of the Guest Editors, we would like to express our sincere thanks to Editor-in-Chief Endre Boros, for providing us an opportunity to publish this collection of papers and Publications Managers Katie D'Agosta and Ann Pulido for their support in making this special issue a success.&nbsp;

Annals of Operations Research

Preface: sustainable operations in manufacturing enterprise

To achieve the 'Zero emission mandate', India put forward the Electric Mobility Vision 2030 which aims that in 2030, Electric vehicles will contribute around 30% of total automobile sales. Uncertainty in the availability of battery raw materials and lack of battery manufacturing facility can be the bottlenecks in achieving the Vision 2030. In this paper, we develop a system dynamics model to analyze the effect of complex demand and supply dynamics of critical battery materials in the avenue of Electric Mobility Vision 2030. Our study indicates that fluctuations in the price of key battery materials - Lithium and Cobalt - can be a major deterrent in realizing the Vision 2030. Hence we need to model and predict the Demand vs. Supply dynamics so that we can take proactive steps towards mitigating the supply risks and realize the vision. © 2019 IEEE.

2019 IEEE Transportation Electrification Conference, ITEC-India 2019

Visualizing the complex demand and supply dynamics of critical battery materials—a key enabler for realizing the Electric Mobility Vision 2030

We develop three parametric forecasting models that jointly estimate the volume component and the choice component of airline demand. These models—JFM-WPA, JFM-PA, and JFM-WTPU—account for (a) demand volume by considering the average demand of an O–D market, booking curve, seasonality and day-of-the-week indices, and (b) customer behavior by including the maximum willingness-to-pay of the customer and the choice attributes of the available options. We use a mixed logit function to formulate the willingness-to-pay and customer choice behavior. JFM-WPA excludes price from the set of choice attributes. JFM-PA considers price as one of the choice attributes. The utilities of maximum willingness-to-pay and choices are combined in JFM-WTPU. We propose a sequential method to estimate the forecasting models. We utilize the data generated by Airline Planning and Operations Simulator (APOS) from real airline historic data. We compare the models and present the results. These demand models can also be used as an input for optimization models, for joint seat allocation and pricing. © 2019, Springer Nature Limited.

Journal of Revenue and Pricing Management

Joint forecasting for airline pricing and revenue management

Sustainable Development Goal 6.1 is “to achieve universal and equitable access to safe and affordable drinking water for all”. To measure affordability of accessing clean water, coping cost approach has been adopted, and this paper contributes to the burgeoning empirical literature on measuring affordability. The objective of this paper is to estimate coping costs related to the erratic, unsafe, and inadequate water supply in the metropolitan area of Chennai, India. Based on the data collected from 423 households, we find that households in Chennai city resort to five main types of coping behaviors: collecting, pumping, treating, storing, and purchasing. We employ the multiple regression with robust errors, to estimate the determinants of the coping costs. We obtain the mean coping costs as INR (Indian Rupee) 553, and INR 658 per month for piped and non-piped households in this sample. For non-piped households, collection costs (time costs in traveling and queuing for collecting water) constitute 22% of the coping costs, while collection costs for piped households are less 2% of the coping costs. One interesting finding is the variation of coping costs with household income—these costs are roughly 1% of income for the high income households to as high as 15% for the low income households. The results outline the need of policy intervention to enhance affordability. © 2018 Elsevier B.V.

Department of Humanities and Social Sciences

Measuring affordability of access to clean water: A coping cost approach

We consider a bargaining situation between an arriving buyer and a seller, where the buyer and the seller have private valuations. The seller has an inventory, which has to be sold over the infinite horizon. It is assumed that the seller incurs a refusal cost, if the trade does not take place. Myerson (1985) discusses four bilateral bargaining mechanisms in static settings - price negotiation, splitting the difference between seller's and buyer's offer, buyer posted price and seller posted price. The objective of this research is to study these mechanisms in the dynamic setting, with consideration of the refusal cost. In this paper, we model the situation as a Markov decision process, which endogenises the seller's marginal inventory valuation. We find that the seller prefers posting prices when the refusal cost is low. Seller is indifferent between buyer posted price and negotiation for the high refusal cost. © 2019 Inderscience Enterprises Ltd.

International Journal of Operational Research

Optimal bargaining mechanisms with refusal cost

In this study, we model the classical newsvendor ordering preferences under ambiguity. The extant literature on normative models in the newsvendor setting assumes decision-making under risk, where decision-maker has exact knowledge of the probabilities associated with the outcomes. In several business situations, the demand distribution is often incomplete or unknown. This results in decision-making under ambiguous situations. Decision theory recognizes the difference between exact probabilities and more realistic ambiguous probabilities. In his seminal paper, Scarf (1958) develops a max-min approach for the newsvendor with incomplete demand information. In the Scarf model, the newsvendor is assumed to be risk-neutral and ambiguity averse. In the recent experimental literature, it has been observed that the newsvendor behavior is not consistent with the Scarf model, and exhibits pull-to- center bias and other biases. This motivates our research to develop quantitative models under ambiguity to describe the observed biases in the literature. © IEOM Society International.

Proceedings of the International Conference on Industrial Engineering and Operations Management

Newsvendor models and biases under ambiguity

In the newsvendor setting, we consider a prospect theory model with a stochastic-subjective reference point. The reference point is based on the pay-offs corresponding to the extreme values of demand; and, is influenced by the perception of costs associated with understocking and overstocking, and the pessimism level of the decision maker. Our prospect theory model describes the recent observations in the newsvendor experiments—the non-linear ordering behavior with respect to the profit margin and behavior at the extreme profit margins, in addition to the pull-to-center effect and asymmetry in ordering. © 2017 Elsevier Ltd

Omega (United Kingdom)

Describing decision bias in the newsvendor problem: A prospect theory model

In a remanufacturing process within the closed loop supply chain (CLSC) the manufacturers collect the end of life or used products from the customers and repair/refurbish them to sell it along with newly manufactured products. This phenomenon is common for products which are mechanical in nature and contains more reuse value. The reverse supply chain part of acquiring the used products incurs acquisition cost and remanufacturing cost, which depends on the quality or grade of returned product. Generally, the remanufacturers pay higher acquisition prices for good quality returned products and lower acquisition prices for poor quality returned products. Also, the remanufacturing cost is a decreasing function of the quality of the returned products. But if the returned product can be refurbished and remanufactured in the corresponding stage of supply chain, it can be sold along with newly manufactured product. Inclusion of remanufactured products will reduce the demand of raw materials or sub components required from suppliers. This reduction in this cost may be transferred in the form of price of the product charged to the customer in forward supply chain. With this backdrop, a non-linear unconstrained model is proposed with the objective of maximizing closed-loop supply chain (including remanufactured products) profitability considering a price dependent demand. The decision variables to be determined are sale price, acquisition prices for stages, total return percentage to be accepted and their distribution. Some interesting insights can be drawn to analyse whether there will be price difference in CLSC arrangements compared to only forward supply chain without considering remanufactured products. A numerical example along with sensitivity analyses at the end gives the insights regarding circumstances under which CLSC operation is really profitable vis-à-vis FSC operation only. © 2018 Elsevier Ltd

Journal of Cleaner Production

Price optimization of multi-stage remanufacturing in a closed loop supply chain

Stringent environmental regulations, improving technology, and growing incomes have shortened vehicle life-cycles that leads to increasing number of end-of life vehicles (ELVs). ELVs form a valuable source of materials when they are recycled in an efficient manner. Regulated ELV recycling markets for ELV recycling ensure an efficient material recovery, unlike unregulated markets which are present predominantly in emerging economies. We analyze ELV recycling in an unregulated market through a system dynamics model. These markets are close to perfectly competitive markets with low enter and exit barriers for dismantlers, and the scrap from dismantled vehicles is traded as a commodity. Dismantlers entry and exit decisions—dismantlers’ dilemma—are based on profitability. We conjecture that the dismantlers’ dilemma constrains the dismantling capacity and fluctuates the scrap supply in unregulated recycling markets. Using the Indian data, the simulation results show that the unregulated market will lead to lower dismantling capacity, which may further worsen by increase in dismantling costs. From our analysis, we suggest that lowering dismantling costs through coordination among the dismantlers and providing support for scrap prices through regulation can improve the dismantling situation in these markets. © 2018 Springer Science+Business Media, LLC, part of Springer Nature

GENERAL

Dismantlers’ dilemma in end-of-life vehicle recycling markets: a system dynamics model

Due to sustainability concerns, there has been increasing emphasis on adoption of electric mobility across the globe. The current Lithium ion battery chemistry that is mainly used for electric mobility has Lithium, Cobalt, Nickel, and Manganese as the key constituents. As the supply chains of these battery materials are disguised and concentrated in few countries, there are concerns about availability and increasing prices that can impede the electric mobility revolution. Furthermore, Lithium ion batteries have competing demand from the clean energy industry. On the other side, the battery prices are falling due to scale effects and improvement in battery technologies, which will further increase the demand for batteries. Hence, it is important to understand the supply-demand dynamics of the Lithium ion battery materials for transition from traditional mobility to electric mobility. In this paper, we attempt to understand the supply-demand dynamics using a system dynamics modeling framework. The system dynamics model enables us to capture the nonlinear, time-delayed feedbacks that operate in the Lithium ion battery ecosystem. © 2018 FISITA. All rights reserved.

FISITA World Automotive Congress 2018

Is this time different for electric vehicle (EV) battery materials?

Risk neutral assumption in the newsvendor problem under recourse option predicts the order quantity insensitive to the selling price; and, risk aversion modeled through common utility functions gives decreasing order quantity with increasing selling price. In this paper, we consider loss aversion to model the choice preference of the decision maker in the newsvendor problem under recourse option, and prove that loss aversion predicts the rational ordering behavior of the newsvendor with respect to the changes in price and cost parameters. Further, we find that loss aversion can significantly improve the performance of utility function based models in predicting the rational behavior. We extend the analysis to a supply chain setting and establish coordinating contract between a loss averse retailer facing a newsvendor problem and a risk neutral supplier under recourse option. We find that the contract parameter does not depend on the loss aversion; hence, the same contract can be implemented with retailers with different levels of loss aversion. © 2017 Elsevier B.V.

European Journal of Operational Research

Loss aversion and rationality in the newsvendor problem under recourse option

The objective of this paper is to develop a solution concept for stability of coalitional games with externalities. The existing solution concepts for this class of coalitional games can be empty. Using the partition function form representation, we propose a new solution concept called equivalence nucleolus, which is shown to be unique and always non-empty. © 2016 Elsevier B.V. All rights reserved.

Operations Research Letters

Equivalence nucleolus for coalitional games with externalities

In this paper, we develop an optimal shelf-space stocking policy when demand, in addition to the exogenous uncertainty, is influenced by the amount of inventory displayed (supply) on the shelves. Our model exploits stochastic dominance condition; and, we assume that the distribution of realized demand with higher stocking level stochastically dominates the distribution of realized demand with lower stocking level. We show that the critical fractile with endogenous demand may not exceed the critical fractile of the classical newsvendor model. Our computational results validate the optimality of amount of units stocked on the retail shelves. © 2015 Elsevier B.V. and Association of European Operational Research Societies (EURO) within the International Federation of Operational Research Societies (IFORS). All rights reserved.

Optimal shelf-space stocking policy using stochastic dominance under supply-driven demand uncertainty

In this paper, we discuss a scenario in capital structure where two divisional managers compete for capital from a firm for their projects in a perfect information setting. We consider verifiable profits and study take-it-or-leave-it contracts where the managers ask for capital from the firm privately or sequentially in public and offer a part of the profit to the firm. Under capital constraint, we demonstrate that in private meeting, there is no sub game perfect Nash equilibrium (SPNE) in pure strategies; but in sequential public meeting, SPNE exists in pure strategies and, for the firm it is better to operate under capital constraint to increase the competition among managers.

Economics Bulletin

Capital rationing under perfect information

In this paper, we consider a supply chain coordination problem when demand faced by a retailer is influenced by the amount of inventory displayed on the retail shelf. We assume that shelf space inventory is used as one of the levers to stimulate demand. Our objective in this research is to design individually rational contracts that coordinate the supply chain when the retailer faces inventory-level-dependent demand. We consider a buyback contract where any leftover inventory at the retailer can be returned to the supplier at a pre-specified terms of the buyback contract. The existing buyback contracts in the supply chain coordination literature do not guarantee the satisfaction of individual rationality constraint. A continuum of buyback contracts coordinate the supply chain. The contracts may differ on the basis of division of profits resulting in contracts that may not be individually rational. This motivates us to use the Shapley value from the cooperative game theory which ensures fairness and individual rationality in the buyback contract. We also provide managerial insights into the design of the contracts and analyze the impact of shelf space inventory on the contract parameters. © 2012 Elsevier B.V.

International Journal of Production Economics

Individually rational buyback contracts with inventory level dependent demand

One of the important solution concepts in cooperative game theory is the Shapley value. The Shapley value is a probabilistic value in which each player subjectively assigns probabilities to the events which define their positions in a game. One of the most important concepts of subjective probability is the exchangeability. This paper characterizes the aspects of exchangeability in the Shapley value. We discuss exchangeability aspects in the Owen's multilinear characterization of the Shapley value; and, derive the Shapley value using exchangeability. We also link exchangeability to the Shapley's original derivation of the Shapley value. Lastly, we discuss exchangeability aspects in the semivalues. We show that, for a fixed finite set of players, the probability assignment in a semivalue cannot be a unique mixture of binomial distributions. © 2013 World Scientific Publishing Company.

International Game Theory Review

Aspects of exchangeability in the shapley value

For necessary goods like water, under supply constraints, fairness considerations lead to negative externalities. The objective of this paper is to design an infinite horizon contract or relational contract (a type of long-term contract) that ensures self-enforcing (instead of court-enforced) behaviour by the agents to mitigate the externality due to fairness issues. In this contract, the consumer is induced to consume at firm-supply level using the threat of higher fair price for future time periods. The pricing mechanism, computed in this paper, internalizes the externality and is shown to be economically efficient and provides revenue sufficiency. © 2013 Copyright Taylor and Francis Group, LLC.