Very Special Tribute to the Memory of an Operations Research Professor Even by a Nobel Prize Winner

Who has not been inspired, supported, or mentored by a special teacher or professor?

I will forever be grateful to my doctoral dissertation advisor, Professor Stella Dafermos, who gave me a lifetime of advice as my Professor at Brown University but who only lived until age 49.

About 3 years ago, I was asked to contribute to a volume in the Annals of Operations Research in honor of Professor Cyrus Derman, who was a leader in the rise of the Department of Industrial Engineering and Operations Research at Columbia University. The invitation came from Professor Michael Katehakis of Rutgers University.

However, during the preparation of the volume, Professor Derman passed away in April 2011 at age 85,  so the volume became a memorial volume, which has now expanded to two volumes.

I recently received the following message from Professor Mchael Katehakis, whose doctoral dissertation advisor was Professor Cyrus Derman.

We now have 50 (!) accepted papers and about 1000 pages. Contributors include: L. Shepp (Wharton), I. Olkin (Stanford), A.F. Veinott Jr. (Stanford), E. Denardo, (Yale), D. Bertsekas (MIT), A. Federgruen (Columbia), R.R. Weber (Cambridge), P. Kolesar (Columbia), P. Zipkin (Duke), H. Vincent Poor (Dean of Engineering School, Princeton Univ.), K. Sigman (Columbia), Flora Spieksma (Leiden) , L.C.M. Kallenberg (Leiden) M. Sobel (Case), Adi Ben Israel (Rutgers), S.M. Ross (Univ. of Southern California and emeritus of Berkeley), A.N. Burnetas (Athens Gr.) W. Powell (Princeton Univ.), Onésimo Hernández-Lerma (Mexico), Feinberg E. (SUNY) , C. Eaves (Stanford)   Melamed, Katehakis (Rutgers)  and many others.

The paper that we contributed to the volume, and that we worked very hard on, is: Supply chain networks with global outsourcing and quick-response production under demand and cost uncertainty, Zugang Liu and Anna Nagurney, in press  in the Annals of Operations Research. Our paper will appear in the first volume.

More information can be found in: Optimization under uncertainty: costs, risks and revenues-  Cyrus Derman memorial volume I Michael N. Katehakis, Sheldon M. Ross, Jian Yang,  who are the Guest Editors.

A very touching tribute to Professor Derman, also scheduled for the memorial volumes, and which contains photos, is:

 On the life and work of Cyrus Derman Michael N. Katehakis, Ingram Olkin, Sheldon M. Ross.

And, not to be missed, is the following: Some memories of Cy Derman by Alvin E. Roth.
 

Professor Roth, who was an Operations Research (OR) major at Columbia, and received the Nobel Prize in Economic Sciences in 2012, along with Professor Lloyd Shapley, writes in the above essay:

In the manner of undergraduates, I didn’t have a clear idea of what my teachers did. But I recall admiring Cy Derman’s attitude: he seemed not to take himself too seriously. I recall he wore turtleneck shirts and talked about tennis, and summers at Stanford. When it came time to think about graduation, Cy urged me to think about grad school in OR, and volunteered to write a letter for me. Some time later, in a reflective moment, he said something to me like “I wrote you a very good letter. I’m not exactly sure why; you didn’t do all that well in your courses. But I have a feeling that you might be good at research.” Cornell and Stanford were the programs he recommended, and when I was accepted at both, his preference was clear, and I followed his advice, which set me on a path I’m still following.

We look forward to its publication, which I am told, should be soon!

Supply Chain Networks with Global Outsourcing and Quick-Response Production -- Operations Research and Fast Fashion

Last Sunday's New York Times magazine had a terrific article by Suzy Hansen, "How Zara Grew Into the World's Largest Fashion Retailer,"  which I very much enjoyed reading. I do admit that,  when I live in Gothenburg, Sweden, I enjoy visiting the Zara, H&M, and TopShop stores there since I conduct research on a variety of network systems, including supply chain networks.  Along with my former doctoral student, who is now an Assistant Professor, Min Yu,  we have published two papers on what is known as fast fashion.

The first paper on the topic that we wrote is: Fashion Supply Chain Management Through Cost and Time Minimization from a Network Perspective, Anna Nagurney and Min Yu, in Fashion Supply Chain Management: Industry and Business Analysis (2011), T.M. Choi, Editor, IGI Global, Hershey, PA, pp 1-20.

The second is: Sustainable Fashion Supply Chain Management Under Oligopolistic Competition and Brand Differentiation, Anna Nagurney and Min Yu, International Journal of Production Economics, Special Section on Green Manufacturing and Distribution in the Fashion and Apparel Industries 135: (2012) pp 532-540.

In The New York Times article,  Hansen writes about the company Inditex, which owns the Zara brand and series of stores. She writes:  More than half of Inditex’s manufacturing takes place either in the factories it owns or within proximity to company headquarters, which is to say in Europe or Northern Africa. Inditex owns factories in Spain and outsources production to factories in Portugal, Morocco and Turkey — considered costly labor markets, typically. The rest of its clothes are produced in China, Bangladesh, Vietnam and Brazil, among other countries. The trendiest items are made closest to home, however, so that the production process, from start to finish, takes only two to three weeks. Inditex’s higher labor costs are offset by greater flexibility — no extra inventory lying around — and on faster turnaround speed. 

The article also has some very nice quotes from Professor Fraiman of Columbia University that got me excited because of the language and terminology. Fraiman, in commenting on Inditex's  ideas on expanding in China stated that: “Their factories in La Coruña have a finite capacity to respond quickly. You open more and more stores, and you don’t have flexibility of the last-minute response. Once they have a big thrust in China, then what happens is that they will have to take the whole model” — the processing of customer reactions, the quick-turnaround design teams, the logistics platform — “and replicate it in China.” But the bigger Inditex gets, he says, the more it will lose control over quality and efficiency. 

In a recent paper of ours, Supply Chain Networks with Global Outsourcing and Quick-Response Production Under Demand and Cost Uncertainty, Zugang Liu and Anna Nagurney, which is in press in a special issue of the Annals of Operations Research, we use Zara, as well as toy production, as some of the motivating examples. The paper is also interesting from a methodological perspective since we integrate stochastic programming, game theory, and variational inequality theory, as well as real options from finance.

Specifically, in our paper, which my co-author presented at the INFORMS conference in Phoenix and will also be presenting at the DSI conference in San Francisco next week, we developed a modeling and computational framework for supply chain networks with global outsourcing and quick-response production under demand and cost uncertainty. The  model considers multiple off-shore suppliers, multiple manufacturers, and multiple demand markets. Using variational inequality theory, we were able to formulate the governing equilibrium conditions of the competing decision-makers (the manufacturers) who are faced with two-stage stochastic programming problems but who also have to cooperate with the other decision makers (the off-shore suppliers). Our theoretical and analytical results shed light on the value of outsourcing from novel real option perspectives. In addition, our simulation studies reveal important managerial insights regarding how demand and cost uncertainty affects the profits, the risks, as well as the global outsourcing and quick-production decisions of supply chain firms under competition.

 The paper will appear in a special issue dedicated to the memory of Professor Cyrus Derman, who passed away last April at age 85. According to Columbia University, Professor Emeritus Cyrus Derman, was considered the driving force behind the success of Columbia Engineering's Department of Industrial Engineering and Operations Research (IEOR). He had also served as the doctoral dissertation advisor of well-known colleagues in Operations Research, including Professor Michael Katehakis, one of the co-editors of the special memorial volume, Peter Kolesar, and Art Veinott, Jr.

The theme of the special issue is Optimization under Uncertainty Costs, Risks and Revenues.

The Global Outsourcing of Electronic Recycling -- Profits at What Costs?

Yesterday's New York Times ran an article, which I shared with some of my collaborators and students, and one already responded with the following message: It breaks my heart whenever I hear this kind of news. A big powerful country should not take advantage of its position.

The article, "Lead from Old U.S. Batteries Sent to Mexico Raises Risk," focuses on the immense health costs and environmental damage from outsourcing of electronic waste recycling to Mexico, a practice that has grown over the past several years.

The article is filled with ironies.

According to the article: The rising flow of batteries is a result of strict new Environmental Protection Agency standards on lead pollution, which make domestic recycling more difficult and expensive, but do not prohibit companies from exporting the work and the danger to countries where standards are low and enforcement is lax.

Also, according to the article, "lead is gold" and the American car battery industry likes to boast that it has the highest recycling rate for any commodity — 97 percent of the lead is recycled — and most states have laws mandating that stores take back old batteries. Whether deposited at the store where they were purchased or with a local mechanic, used batteries are redirected to recycling plants, where the real goal is not environmental stewardship but extracting the precious lead that is the gold of a protean trading system where traceability is impossible.

By outsourcing electronic recycling to Mexico not only are domestic recyclers in the US being hurt economically, but Mexicans who reside near recycling plants that do not adhere to proper lead recovery standards are faced with extraordinary health risks and negative impacts. There are schools located close to such facilities and more and more children are being identified with high lead amounts in their blood. Lead leads to neurological disorders, delayed/stunted learning, and behavioral problems.

I have conducted research on environmental sustainability for about 15 years now and have written both papers and books on the subject with my doctoral students who continue to produce scholarship on this topic. One of my most heavily cited papers is a paper with my former doctoral student, Fuminori Toyasaki, who is now a Professor at York University in Canada.

The paper is: Reverse Supply Chain Management and Electronic Waste Recycling: A Multitiered Network Equilibrium Framework for E-Cycling, Transportation Research E 41: (2005) pp 1-28.

Several of my former doctoral students, who are now all professors at business schools, just had a co-authored paper accepted on closed loop supply chains that is also relevant to electronic recycling. The paper, The Closed-loop Supply Chain Network with Competition, Distribution Channel Investment, and Uncertainties, by Qiang Qiang, Ke Ke, Trisha Anderson, and June Dong, will appear in OMEGA -The International Journal of Management Science.

Another relevant article of ours, Environmental and Cost Synergy in Supply Chain Network Integration in Mergers and Acquisitions, co-authored with Trisha Woolley (nee Anderson) quantified synergies, including environmental ones, associated with mergers and acquisitions, a topic of clear relevance to this application domain.

Along with Dr. Toyasaki, Professor Tina Wakolbinger of the Vienna University of Economics and Business and I are now completing a study on outsourcing, regulation, and electronic recycling.

I lived in Mexico the summer between my graduation from high school and my freshman year at Brown University. That experience remains one of my most wondrous ones of living in another country.

Businesses must look at the entire product supply chain life cycle to ensure that it is socially responsible and environmentally sound. Outsourcing to countries with low environmental awareness and poor environmental standards monitoring is contrary to civilized business practices.

Besides, what is more important than a company's reputation!

For an informative and accessible presentation on e-cycling, delivered by my husband, who also provided the above collage of images, see: Our Campus - Our Planet at the University of Hartford Freshman Orientation (pdf)

The Vulnerability and Complexity of Our Global Supply Chains -- What the Disasters are Revealing

Last week, while I was in Canada to give a seminar on perishable supply chains in health care at McGill University, I picked up a copy of The Globe and Mail, which is the national Canadian newspaper.

I love Canada, and not only because I was born there, but also because of its people, its landscape, history, excellent schools, and health care. Since April I have been invited to give three talks there (two at McGill University and one at the University of Waterloo) and whenever I am back I always feel very welcome and at peace there.

I was very impressed by the coverage of the disruptions to global supply chains due to the horrific floods in Thailand by The Globe and Mail, a week ahead of coverage in The New York Times, I might add.

The article, Why the mad migration of parts to your iPhone matters, was especially interesting and highlighted that it may take a crisis (and we certainly have had our share of disasters this past year) for the complexity of global supply chains to be noted.

The Thai floods are now having major disruptive effects. According to the article, Honda Motor stopped production in Malaysia due to a lack of parts from Thailand. The computer industry is now bracing for a shortage of hard-disk drives after Thai factories were flooded.

Indeed, it is expected that the Thai floods may disrupt global electronic supply chains for several quarters.

The number of deaths from the floods in Thailand has now surpassed 500 so the toll on the loss of lives and human suffering is also huge.

I managed to reach one of our former students from Thailand, who, just this past August, successfully defended his PhD in Management Science at the Isenberg School of Management and was awarded the doctorate officially in September from UMass Amherst.

Part of his response, sent last week:

Dear Prof. Nagurney,

Thank you very much for your concerns.

The flood situation in Thailand is indeed very bad. Some say it is the worst ever in the past 50 years of Thai history.

As I am sure you have seen the news. Lots of agricultural areas have been affected and will be under water for at least 3 weeks, same as half of industrial area of Thailand. In brief, it affects more than 3 million people, they either have to evacuate or else live in an upstair-level of their homes, surrounded by water and disconnected from the outside world. There are now lots of logistic and supply-chain problems, e.g. to get food and other consumer products to people who insist to live there underwater in their homes, or to move people from affected villages to evacuation zones. Worse than that, in my opinion, the government has no experience in dealing with this kind of situation ... Now the water is at the doors of BKK (Bangkok), some have entered! So we now totally freak out and are afraid that BKK will be under water soon. The government even declared a special public holiday last week to clear people out of BKK. Most schools delayed the start of the new semester to 11/15 or even later than that (normally schools start on 11/01). Now BKK is totally paralyzed, people do nothing except wait for the water to come.

In my case, I've already fled BKK to my family hometown (which is still safe from the water). So my family and I are now safe and sound. However, my home in the suburb of BKK is now under water (not totally submerged, but half of it). Fortunately we have moved important stuff out before the water reached.

I think it will take a month or more before everything turns better, but truly hope it is sooner than that. Again, thanks for your kind concerns. I will update you as soon as there is any major news about this catastrophe.

Supply Chain Networks, Global Outsourcing, and Quick Response Production -- Integrating Methodologies for Theory and Practice

During the SAMSI Workshop on Engineering and Renewable Energy, which was one of the events organized under this year's theme of Uncertainty Quantification, I was asked, after my presentation on Sustainability, as to the uncertainty underlying supply chains.

In response, I noted both cost and demand uncertainty, issues that we have been researching in applications from the design of supply chain networks for critical needs products to assessing the performance of supply chains under cost and demand disruptions. Of course, in global supply chains, exchange rate risk is also a major issue that we have investigated.

I had also mentioned, in a discussion with a workshop participant, that another one of our papers on supply chain uncertainty was under review for a journal and, yesterday, we received the official acceptance.

Our paper, Supply Chain Networks with Global Outsourcing and Quick-Response Production Under Demand and Cost Uncertainty, by Zugang Liu and Anna Nagurney, has been accepted for publication in the Annals of Operations Research. It will appear in a special issue dedicated to the memory of Professor Cyrus Derman, who passed away last April at age 85. According to Columbia University, Professor Emeritus Cyrus Derman, was considered the driving force behind the success of Columbia Engineering's Department of Industrial Engineering and Operations Research (IEOR). He had also served as the doctoral dissertation advisor of well-known colleagues in Operations Research, including Professor Michael Katehakis, one of the co-editors of the special memorial volume, Peter Kolesar, and Art Veinott, Jr.

The theme of the special issue is Optimization under Uncertainty Costs, Risks and Revenues.

The issue was originally formulated to celebrate Professor Derman's 86th birthday and I had been told that he was very excited about it but then passed away -- hence, the issue is now a memorial one.

I am very, if I may say, "fond" of the Annals of Operations Research, which was edited for many years by Professor Peter Hammer, who died tragically in a car accident in December 2006. I had last seen him at the European Conference on Operational Research in Iceland in 2006 and enjoyed my conversation with him and his wife very much. This journal is now edited by Professor Endre Boros, who actually informed many of us of the passing of Professor Hammer. I had edited a special issue of the Annals back in 1993, entitled, Advances in Equilibrium Modeling, Analysis and Computation, vol. 44, and have also published in the journal since.

In our paper, Supply Chain Networks with Global Outsourcing and Quick-Response Production Under Demand and Cost Uncertainty, we integrate the methodologies of stochastic programming and variational inequalities in order to construct a modeling and computational framework for supply chain networks with
global outsourcing and quick-response production under demand and cost uncertainty. Our model handles multiple off-shore suppliers, multiple manufacturers, and multiple demand markets.

Using variational inequality theory, we formulated the governing equilibrium conditions of the competing manufacturers, who are faced with two-stage stochastic programming problems but who also have to cooperate with the off-shore suppliers. Our theoretical and analytical results shed light on the value of outsourcing from novel real option perspectives as in finance. In addition, our simulation studies revealed important managerial insights regarding how demand and cost uncertainty affects the profits, the risks, as well as the global outsourcing and quick-production decisions of supply chain firms under competition.

The modeling and computational framework is relevant to many industries in which quick response production and enhanced supply chain flexibility and responsiveness may provide a competitive advantage.

We dedicated the paper to the memory of Professor Cyrus Derman.

Higher Quality at Lower Prices -- An Agreement for Generic Medicines that Must be Passed

Many of the greatest successes of the field of Operations Research have resulted in policy implementations and the alteration of the status quo, sometimes even through regulations supported by quantifiably convincing mathematical models and data.

In terms of healthcare, the leading work of our colleague, Professor Ed Kaplan at the Yale School of Management, in needle exchange programs to reduce AIDS, immediately comes to mind.

When it comes to healthcare, some of the major issues that we are faced with in our country today are twofold: high costs and (low) quality, with an associated component being questionable availability whether of healthcare providers or even medicines or service, in general.

Healthcare is so important that the only way in which we may be able to guarantee change is through legislation. During times such as these, when our medical nuclear supply chains have exhibited shortages of critical diagnostic radioisotopes, and when cancer drugs cannot be obtained by patients who need them for their survival, we are clearly in a medical crisis.

We wrote the OpEd piece: Viewpoint: Passage of American Medical Isotope Production Act of 2011 will help ensure U.S. nuclear medicine supply chain, and today's editorial in The New York Times: A Deal to Get Cheaper and Safer Drugs argues that lawmakers must quickly approve legislation that would ensure fees from generic drug manufacturers that would enable regular inspections of out of country manufacturing plants to ensure safety, and let's not forget about availability, as I have written about passionately on this blog.

The understanding of our complex global healthcare supply chains, and associated policy making, must be based on rigorous mathematical modeling and analysis that capture the network economics aspects as well as multicriteria decision-making to ensure quality but at reasonable cost. Operations researchers, with their multidisciplinary training, as well as mindsets, and collaborative networks, are leading the way.

It is imperative, however, that we, as researchers, educators and members of professional societies, get the news out about research that can make a difference.

Some of our relevant research on multitiered, multicriteria supply chain networks:

Supply Chain Outsourcing Under Exchange Rate Risk and Competition
Zugang Liu and Anna Nagurney, Omega 39: (2011) pp 539-549.

Global Supply Chain Network Dynamics with Multicriteria Decision-Making Under Risk and Uncertainty
Anna Nagurney and Dmytro Matsypura, Transportation Research E 41: (2005) pp 585-612.

Multitiered Supply Chain Networks: Multicriteria Decision–Making under Uncertainty
June Dong, Ding Zhang, Hong Yan, and Anna Nagurney, Annals of Operations Research 135: (2005) pp 155-178.

Some of our research on healthcare supply chains, specifically:

Medical Nuclear Supply Chain Design: A Tractable Network Model and Computational Approach
Anna Nagurney and Ladimer S. Nagurney (2011)

Multiproduct Humanitarian Healthcare Supply Chains: A Network Modeling and Computational Framework
Anna Nagurney, Min Yu, and Qiang Qiang (2011)

Supply Chain Network Operations Management of a Blood Banking System with Cost and Risk Minimization
Anna Nagurney, Amir H. Masoumi, and Min Yu, Computational Management Science: (2011), in press

Supply Chain Network Design of a Sustainable Blood Banking System
Anna Nagurney and Amir H. Masoumi, in Sustainable Supply Chains: Models, Methods and Public Policy Implications, T. Boone, V. Jayaraman, and R. Ganeshan, Editors, Springer, London, England, 2011, in press.

Why the Shortages of Drugs and Medicines in the Global Supply Chain and What We Are Doing to Help

You may have been reading the recent news about the shortages of certain drugs and medicines that are essential to the survival of the patients, including cancer patients, that so desperately need them.

From an article in the USA Today, and recent articles in The New York Times, including one that highlighted that 75% of the drugs in the US are generic ones with the majority being produced abroad in plants that are rarely inspected, it is clear that we are in a crisis situation.

Of the 34 generic cancer drugs on the market, as of this month, 14 were in short supply. They include drugs that are the mainstay of treatment regimens used to cure leukemia, lymphoma, and testicular cancer.

Indeed, according to Ezekiel Emanuel, writing in The Times: In 2004 there were 58 new drug shortages, but by 2010 the number had steadily increased to 211 and these numbers include noncancer drugs as well.

How can this be happening in the richest and most technologically advanced country in the world, with leadership in medical know-how?

How horrific that patients, whose treatments and very survival depend on such drugs, cannot procure them in a timely manner?

In a recent paper of ours, Multiproduct Humanitarian Healthcare Supply Chains: A Network Modeling and Computational Framework, Anna Nagurney, Min Yu, and Qiang Qiang, we discuss the issues of shortages of various drugs and vaccines, including the leukemia drug, cytarabine, and how to design and redesign supply chains so that medicines are delivered to those who need them. In the paper, we state that:

Despite significant advances in supply chain management in terms of both methodology and application, healthcare supply chains, and, in particular, humanitarian health care supply chains have not received the needed attention. In particular, humanitarian healthcare supply chains have many unique characteristics. For example, as pointed out in the introduction section of the handbook published by the Pan American Health Organization and World Health Organization (2001), ``The various stages in the flow of supplies from their point of origin to the moment they reach their recipients -- whether they be the organizations managing the emergency or the actual beneficiaries of the assistance -- are a chain made up of very close links. How any one of these links is managed invariably affects the others. Supply management must therefore be the focus of an integral approach that looks at all the links in the sequence and never loses sight of their interdependence ...". Therefore, an appropriate framework for healthcare humanitarian supply chains must capture the entire relevant network.

In this paper, as well as in some of our earlier studies, whether on supply chains for critical need products, supply chains under demand and cost disruptions, or supply chains with outsourcing, our goal is to optimize within the constraints. By developing analytical, transparent tools, one can capture the major issues and can then evaluate how to redesign the networks so that those whose lives depend on drugs and medicines can get them when they need them. We must put in place the proper incentives for decision-makers to guarantee the sustainability of our humanitarian healthcare supply chains.

Supply Chain Networks and Quick-Response Production under Uncertainty

In the paper, Supply Chain Outsourcing Under Exchange Rate Risk and Competition, Zugang Liu and Anna Nagurney, Omega 39: (2011) pp 539-549, we explored supply chain outsourcing decision-making under exchange rate uncertainty and competition. The paper recently made the Top 25 Hottest Articles in Decision Sciences (at number 5).

We then became interested in supply chain flexibility and associated decision-making in quick-response industries, such as fast fashion, toys, consumer electronics and personal consumers, as well as industries associated with merchandise for holidays and special events.

The result is a network modeling and computational framework that integrates stochastic programming and variational inequalities for supply chain decision-making with global outsourcing and quick-response production under demand and cost uncertainty. Our model considers multiple off-shore suppliers, multiple manufacturers, and multiple demand markets. The complete study is reported in our paper,
Supply Chain Networks with Global Outsourcing and Quick-Response Production Under Demand and Cost Uncertainty, Zugang Liu and Anna Nagurney.

Specifically, using variational inequality theory, we formulated the governing equilibrium conditions of the competing decision-makers (the manufacturers) who are faced with two-stage stochastic programming problems but who also have to cooperate with the other decision-makers (the off-shore suppliers). Our theoretical and analytical results shed light on the value of outsourcing from novel real option perspectives.

Our results reveal important managerial insights for supply chain decision-makers who are faced with decisions regarding outsourcing and quick-response production under demand and cost uncertainty:

1). For manufacturers who do not have quick-response production capability, rising demand uncertainty will increase the value of outsourcing. However, for risk-neutral decision-makers who have quick-response production capability, rising cost uncertainty will reduce the value of outsourcing.

2). Manufacturers with quick-response production can expect higher average profit and lower risk than their competitors who do not have such capability. However, these manufacturers may not have a higher chance to beat their competitors in terms of profit when the demand uncertainty is low. Moreover, they may have lower profits if the demand turns out to be at normal levels.

3). The prevalence of quick-response production will reduce the benefit.

4). Manufacturers without quick-response capability should understand that they can still be indirectly and negatively affected by the cost variations of quick-response production through market competition.