The industrial structure of National Defence and transaction costs

A recent paper in Defence Economics suggests that “a single variable, the public opinion balance, ... when accompanied by a control variable measuring the proportion of responses in the ‘residuum’ (no opinion or keep the status quo), permits an accurate prediction of subsequent changes in the rate of change of U.S. defense outlays from the mid‐1960s through the 1980s” (Higgs and Kilduff, 1993, p. 227). In contrast, this comment provides evidence that since 1986 the Higgs‐Kilduff model frequently mispredicts the direction of U.S. defense spending. In addition, the average prediction error, and its variance, since 1986 consistently exceeds the average prediction error, and its variance, for the years prior to 1986.     

Search and the introduction of improved technologies

Modeling R&D as standard sequential search, we consider a monopolist who can implement a sequence of technological discoveries during the technology search process: he earns revenue on his installed technology while he engages in R&D to find improved technology. What is not standard is that he has a finite number of opportunities to introduce improved technology. We show that his optimal policy is characterized by thresholds ξ_i(x): introduce the newly found technology if and only if it exceeds ξ_i(x) when x is the state of the currently installed technology and i is the number of remaining introductions allowed. We also analyze a nonstationary learning‐by‐doing model in which the monopolist's experience in implementing new technologies imparts increased capability in generating new technologies. Because this nonstationary model is not in the class of monotone stopping problems, a number of surprising results hold and several seemingly obvious properties of the stationary model no longer hold. © 2011 Wiley Periodicals, Inc. Naval Research Logistics, 2011     

Securing a border under asymmetric information

We study a stochastic interdiction model of Morton et al. IIE Transactions, 39 (2007):3–14 that locates radiation sensors at border crossings to detect and prevent the smuggling of nuclear material. In this model, an interdictor places sensors at customs checkpoints to minimize a potential smuggler's maximum probability of crossing a border undetected. We focus on a model variant in which the interdictor has different, and likely more accurate, perceptions of the system's parameters than the smuggler does. We introduce a model that is tighter and uses fewer constraints than that of Morton et al. We also develop a class of valid inequalities along with a corresponding separation procedure that can be used within a cutting‐plane approach to reduce computational effort. Computational results demonstrate the effectiveness of our approach.Copyright © 2014 Wiley Periodicals, Inc. Naval Research Logistics 61: 91–100, 2014     

Determination of suppliers' optimal quantity discount schedules with heterogeneous buyers

Although the quantity discount problem has been extensively studied in the realm of a single supplier and a single buyer, it is not well understood when a supplier has many different buyers. This paper presents an analysis of a supplier's quantity discount decision when there are many buyers with different demand and cost structures. A common discrete all‐unit quantity discount schedule with many break points is used. After formulating the model, we first analyze buyers' responses to a general discrete quantity discount schedule. This analysis establishes a framework for a supplier to formulate his quantity discount decision. Under this framework, the supplier's optimal quantity discount schedule can be formulated and solved by a simple non‐linear programming model. The applicability of the model is discussed with an application for a large U.S. distribution network. © 2002 John Wiley & Sons, Inc. Naval Research Logistics, 49: 46–59, 2002; DOI 10.1002/nav.1052     

Assessing the value of demand sharing in supply chains

We consider the problem of assessing the value of demand sharing in a multistage supply chain in which the retailer observes stationary autoregressive moving average demand with Gaussian white noise (shocks). Similar to previous research, we assume each supply chain player constructs its best linear forecast of the leadtime demand and uses it to determine the order quantity via a periodic review myopic order‐up‐to policy. We demonstrate how a typical supply chain player can determine the extent of its available information in the presence of demand sharing by studying the properties of the moving average polynomials of adjacent supply chain players. The retailer's demand is driven by the random shocks appearing in the autoregressive moving average representation for its demand. Under the assumptions we will make in this article, to the retailer, knowing the shock information is equivalent to knowing the demand process (assuming that the model parameters are also known). Thus (in the event of sharing) the retailer's demand sequence and shock sequence would contain the same information to the retailer's supplier. We will show that, once we consider the dynamics of demand propagation further up the chain, it may be that a player's demand and shock sequences will contain different levels of information for an upstream player. Hence, we study how a player can determine its available information under demand sharing, and use this information to forecast leadtime demand. We characterize the value of demand sharing for a typical supply chain player. Furthermore, we show conditions under which (i) it is equivalent to no sharing, (ii) it is equivalent to full information shock sharing, and (iii) it is intermediate in value to the two previously described arrangements. Although it follows from existing literature that demand sharing is equivalent to full information shock sharing between a retailer and supplier, we demonstrate and characterize when this result does not generalize to upstream supply chain players. We then show that demand propagates through a supply chain where any player may share nothing, its demand, or its full information shocks (FIS) with an adjacent upstream player as quasi‐ARMA in—quasi‐ARMA out. We also provide a convenient form for the propagation of demand in a supply chain that will lend itself to future research applications. © 2014 Wiley Periodicals, Inc. Naval Research Logistics 61: 515–531, 2014     

Corporate performance and military production in South Africa

With the end of the Cold War and apartheid, a process of demilitarisation and dramatic cuts in military spending has marked the transition to democracy in South Africa. Between 1989 and 1997 the South African defence budget was cut by more than 50% in real terms, with most of the cuts coming from the procurement budget, which was cut by nearly 70% in real terms during the same period. These cuts have had a significant impact on the country's defence industrial base. However, there has been surprisingly little research on the changes to defence companies that have taken place since the late 1980s. This paper makes a start at rectifying that deficiency by providing an analysis of the restructuring of the major defence‐dependent companies over the period 1988–97. It uses a number of financial ratios and other measures of corporate performance to compare their experience with non‐defence companies in the rest of the South African economy during the same period.     

Reconsidering Truman's claim of ‘half a million American lives’ saved by the atomic bomb: The construction and deconstruction of a myth

This essay, based on substantial archival research, critically examines President Harry S. Truman's often‐cited post‐World War II claim that he had received pre‐Hiroshima counsel in 1945 that the invasion(s) of Japan could cost ‘half a million American lives’. This essay concludes that there is no 1945 archival evidence supporting Truman's postwar contention, and that there is substantial evidence undercutting his claim. Moreover, in view of the total size of American forces scheduled for 1945–46 operations against Japan, any claim of 500,000 American dead seems implausible. This essay also critically examines how Truman's postwar memoir claim of ‘half a million American lives’ was constructed, and this essay discusses the many and rather varied casualty/fatality numbers that Truman presented during his White House and post‐presidential years. Such an analysis also focuses on the numbers he privately provided in the construction of his memoirs by ‘ghost’ writers. Reaching beyond the specific question of Truman's claims, this essay also discusses the dangers of analysts relying heavily upon post‐event memoir and interview sources, and this essay emphasises the need generally to instead privilege contemporaenous archival materials. Otherwise, analysts risk letting policymakers, often in self‐serving recollections, shape the history of crucial events.     

Technical note: Reexamination of all‐or‐none inspection policies in a supply chain with endogenous product quality

This note studies the optimal inspection policies in a supply chain in which a manufacturer purchases components from a supplier but has no direct control of component quality. The manufacturer uses an inspection policy and a damage cost sharing contract to encourage the supplier to improve the component quality. We find that all‐or‐none inspection policies are optimal for the manufacturer if the supplier's share of the damage cost is larger than a threshold; otherwise, the manufacturer should inspect a fraction of a batch. © 2008 Wiley Periodicals, Inc. Naval Research Logistics, 2008     

Political Scientists and Historians in Search of the Bomb

Britain's failure to cut military commitments in spite of escalating defence costs was not the result of blocking policies by disgruntled services. Rather, there was no determination among Whitehall's political departments to cut commitments even before the service departments could obstruct a decision on force levels. The Conservative governments under Macmillan and Douglas‐Home showed a propensity for substantial force reductions in Europe rather than in out‐of NATO areas. This remained London's long‐term aim even after it had been accepted to build up British troops in Europe to agreed force levels. During Alec Douglas‐Home's premiership Britain's global military role, especially east of Suez, gained a greater significance. An Anglo‐American military axis operating in the Far East and the Indian Ocean became a prominent feature. Ultimately, Anglo‐American military interdependence outside NATO was to ensure that Britain would be able to pursue a policy with more room for independent action.     

Competing with channel partners: Supply chain conflict when retailers introduce store brands

Private‐label products are of increasing importance in many retail categories. While national‐brand products are designed by the manufacturer and sold by the retailer, the positioning of store‐brand products is under the complete control of the retailer. We consider a scenario where products differ on a performance quality dimension and we analyze how retailer–manufacturer interactions in product positioning are affected by the introduction of a private‐label product. Specifically, we consider a national‐brand manufacturer who determines the quality of its product as well the product's wholesale price charged to the retailer. Given the national‐brand quality and wholesale price, the retailer then decides the quality level of its store brand and sets the retail prices for both products. We find that a manufacturer can derive substantial benefits from considering a retailer's store‐brand introduction when determining the national brand's quality and wholesale price. If the retailer has a significant cost disadvantage in producing high‐quality products, the manufacturer does not need to adjust the quality of the national‐brand product, but he should offer a wholesale price discount to ensure its distribution through the retailer. If the retailer is competitive in providing products of high‐quality, the manufacturer should reduce this wholesale price discount and increase the national‐brand quality to mitigate competition. Interestingly, we find the retailer has incentive to announce a store‐brand introduction to induce the manufacturer's consideration of these plans in determining the national‐brand product quality and wholesale price. © 2010 Wiley Periodicals, Inc. Naval Research Logistics, 2010     

Bayesian inference for a Lanchester type combat model

We undertake inference for a stochastic form of the Lanchester combat model. In particular, given battle data, we assess the type of battle that occurred and whether or not it makes any difference to the number of casualties if an army is attacking or defending. Our approach is Bayesian and we use modern computational techniques to fit the model. We illustrate our method using data from the Ardennes campaign. We compare our results with previous analyses of these data by Bracken and Fricker. Our conclusions are somewhat different to those of Bracken. Where he suggests that a linear law is appropriate, we show that the logarithmic or linear‐logarithmic laws fit better. We note however that the basic Lanchester modeling assumptions do not hold for the Ardennes data. Using Fricker's modified data, we show that although his “super‐logarithmic” law fits best, the linear, linear‐logarithmic, and logarithmic laws cannot be ruled out. We suggest that Bayesian methods can be used to make inference for battles in progress. We point out a number of advantages: Prior information from experts or previous battles can be incorporated; predictions of future casualties are easily made; more complex models can be analysed using stochastic simulation techniques. © 2000 John Wiley & Sons, Inc. Naval Research Logistics 47: 541–558, 2000     

PART III: CHALLENGING THE UNCONVENTIONAL WISDOM ON DETERRENCE

In reply to Ward Wilson's response, the author notes that Wilson's current position about the effectiveness of nuclear deterrence is relatively agnostic compared to his original essay and that he now uses a much finer brush to define his qualms about nuclear deterrence. The perfectibility, rather than the existence of nuclear deterrence, is the paramount issue. The author also contends that in remaining fixated on civilian deaths and using Hiroshima and Nagasaki as his litmus test, Wilson fails to adequately consider whether there are other potential nuclear harms—fundamentally different in scale, scope, and moral and existential ramifications—that potentially can terrify societies enough to make nuclear deterrence a perfect or nearly perfect mode of security.     

A generalization of the entropy model for brand purchase behavior

Hemiter's entropy model for brand purchase behavior has been generalized for Renyi's measure of entropy which is a more general concept than Shannon's measure of entropy used by Herniter and which includes Shannon's measure as a limiting case. The generalized model considered here is more flexible than Herniter's model since it can give different marketing statistics for different products and it can give these statistics even when only some of the brands are considered.     

Supplier‐buyer contracting: Asymmetric cost information and cutoff level policy for buyer participation

We consider the problem of designing a contract to maximize the supplier's profit in a one‐supplier–one‐buyer relationship for a short‐life‐cycle product. Demand for the finished product is stochastic and price‐sensitive, and only its probability distribution is known when the supply contract is written. When the supplier has complete information on the marginal cost of the buyer, we show that several simple contracts can induce the buyer to choose order quantity that attains the single firm profit maximizing solution, resulting in the maximum possible profit for the supplier. When the marginal cost of the buyer is private information, we show that it is no longer possible to achieve the single firm solution. In this case, the optimal order quantity is always smaller while the optimal sale price of the finished product is higher than the single firm solution. The supplier's profit is lowered while that of the buyer is improved. Moreover, a buyer who has a lower marginal cost will extract more profit from the supplier. Under the optimal contract, the supplier employs a cutoff level policy on the buyer's marginal cost to determine whether the buyer should be induced to sign the contract. We characterize the optimal cutoff level and show how it depends on the parameters of the problem. © 2001 John Wiley & Sons, Inc. Naval Research Logistics 48: 41–64, 2001     

The effect of a temporary product distribution channel on supply chain performance

We analyze a supply chain of a manufacturer and two retailers, a permanent retailer who always stocks the manufacturer's product and an intermittent deal‐of‐the day retailer who sells the manufacturer's product online for a short time. We find that without a deal‐of‐the‐day (DOTD) retailer, it is suboptimal for the manufacturer to offer a quantity discount while it is optimal for the retailer to offer periodic price discounts to consumers. With the addition of a DOTD retailer, it is likely to be optimal for the manufacturer to offer a quantity discount. We show that even without market expansion, i.e., no exclusive DOTD retailer consumers, opening the intermittent channel can leave the permanent retailer no worse‐off while increasing the manufacturer's profit. We identify the regular and discounted wholesale prices and the threshold quantity at which the manufacturer should give the discount. We also identify the optimal retail prices. We find that opening the intermittent channel increases the profit of the manufacturer, is likely to decrease the average retail price and to increase sales, and may increase the permanent retailer's profit. © 2016 Wiley Periodicals, Inc. Naval Research Logistics 63: 505–528, 2016     

Value added analysis for army equipment modernization

This paper describes the Value Added Analysis methodology which is used as part of the U.S. Army's Planning, Programming, Budgeting, and Execution System to assist the Army leadership in evaluating and prioritizing competing weapon system alternatives during the process of building the Army budget. The Value Added Analysis concept uses a family of models to estimate an alternative system's contribution to the Army's effectiveness using a multiattribute value hierarchy. A mathematical optimization model is then used to simultaneously determine an alternative's cost‐benefit and to identify an optimal mix of weapon systems for inclusion in the Army budget. © 1999 John Wiley & Sons, Inc. Naval Research Logistics 46: 233–253, 1999     

Locational tying of complementary retail items

We study a selling practice that we refer to as locational tying (LT), which seems to be gaining wide popularity among retailers. Under this strategy, a retailer “locationally ties” two complementary items that we denote by “primary” and “secondary.” The retailer sells the primary item in an appropriate “department” of his or her store. To stimulate demand, the secondary item is offered in the primary item's department, where it is displayed in very close proximity to the primary item. We consider two variations of LT: In the multilocation tying strategy (LT‐M), the secondary item is offered in its appropriate department in addition to the primary item's department, whereas in the single‐location tying strategy (LT‐S), it is offered only in the primary item's location. We compare these LT strategies to the traditional independent components (IC) strategy, in which the two items are sold independently (each in its own department), but the pricing/inventory decisions can be centralized (IC‐C) or decentralized (IC‐D). Assuming ample inventory, we compare and provide a ranking of the optimal prices of the four strategies. The main insight from this comparison is that relative to IC‐D, LT decreases the price of the primary item and adjusts the price of the secondary item up or down depending on its popularity in the primary item's department. We also perform a comparative statics analysis on the effect of demand and cost parameters on the optimal prices of various strategies, and identify the conditions that favor one strategy over others in terms of profitability. Then we study inventory decisions in LT under exogenous pricing by developing a model that accounts for the effect of the primary item's stock‐outs on the secondary item's demand. We find that, relative to IC‐D, LT increases the inventory level of the primary item. We also link the profitability of different strategies to the trade‐off between the increase in demand volume of the secondary item as a result of LT and the potential increase in inventory costs due to decentralizing the inventory of the secondary item. © 2009 Wiley Periodicals, Inc. Naval Research Logistics 2009     

Selling to strategic and loss‐averse consumers: Stocking,procurement, and product design policies

Motivated by the presence of loss‐averse decision making behavior in practice, this article considers a supply chain consisting of a firm and strategic consumers who possess an S‐shaped loss‐averse utility function. In the model, consumers decide the purchase timing and the firm chooses the inventory level. We find that the loss‐averse consumers' strategic purchasing behavior is determined by their perceived gain and loss from strategic purchase delay, and the given rationing risk. Thus, the firm that is cognizant of this property tailors its inventory stocking policy based on the consumers' loss‐averse behavior such as their perceived values of gain and loss, and their sensitivity to them. We also demonstrate that the firm's equilibrium inventory stocking policy reflects both the economic logic of the traditional newsvendor inventory model, and the loss‐averse behavior of consumers. The equilibrium order quantity is significantly different from those derived from models that assume that the consumers are risk neutral and homogeneous in their valuations. We show that the firm that ignores strategic consumer's loss‐aversion behavior tends to keep an unnecessarily high inventory level that leads to excessive leftovers. Our numerical experiments further reveal that in some extreme cases the firm that ignores strategic consumer's loss‐aversion behavior generates almost 92% more leftovers than the firm that possesses consumers’ loss‐aversion information and takes it into account when making managerial decisions. To mitigate the consumer's forward‐looking behavior, we propose the adoption of the practice of agile supply chain management, which possesses the following attributes: (i) procuring inventory after observing real‐time demand information, (ii) enhanced design (which maintains the current production mix but improves the product performance to a higher level), and (iii) customized design (which maintains the current performance level but increases the variety of the current production line to meet consumers’ specific demands). We show that such a practice can induce the consumer to make early purchases by increasing their rationing risk, increasing the product value, or diversifying the product line. © 2015 Wiley Periodicals, Inc. Naval Research Logistics 62: 435–453, 2015     

A chessboard model of the U‐boat war in the Atlantic with applications to signals intelligence

This paper uses a simple Monte Carlo model to analyze the influence of signals intelligence on the Second World War's Battle of the Atlantic. The principle measure of effectiveness is the number of U‐boat days of attack to which convoys were subjected. A secondary measure is the number of convoyed ships sunk. The model is validated against historical data and then used to explore the effectiveness of the two sides' signals intelligence. Allied use of signals intelligence is shown to have been capable of completely offsetting German use of signals intelligence, and then some. © 2003 Wiley Periodicals, Inc. Naval Research Logistics, 2005     

Service design at diagnostic service centers

We study a service design problem in diagnostic service centers, call centers that provide medical advice to patients over the phone about what the appropriate course of action is, based on the caller's symptoms. Due to the tension between increased diagnostic accuracy and the increase in waiting times more in‐depth service requires, managers face a difficult decision in determining the optimal service depth to guide the diagnostic process. The specific problem we consider models the situation when the capacity (staffing level) at the center is fixed, and when the callers have both congestion‐ and noncongestion‐related costs relating to their call. We develop a queueing model incorporating these features and find that the optimal service depth can take one of two different structures, depending on factors such as the nurses' skill level and the maximum potential demand. Sensitivity analyses of the two optimal structures show that they are quite different. In some situations, it may (or may not) be optimal for the manager to try to expand the demand at the center, and increasing skill level may (or may not) increase congestion. © 2012 Wiley Periodicals, Inc. Naval Research Logistics, 2012