In a recent research seminar of The Boeing Center on Technology, Information and Manufacturing (BCTIM) at Olin Business School, interesting issues on capacity and risk management in a commodity industry, specifically palm production and distribution which are representative of many agricultural supply chain activities, were discussed.
Guest Blog by: Panos Kouvelis and Guang Xiao
Professor Onur Boyabatli, from our partner university Singapore Management University (SMU) presented his most recent paper “Capacity Management in Agricultural Commodity Processing and Application in the Palm Industry” in the first seminar of our Fall Lecture Series in operations and supply chain management. He illustrated the common operational challenges that palm producers face due to the uncertain production and market environments, e.g., production yield risk, input and output price risk, etc.
Professor Boyabatli proposed a multi-period model to capture a palm producer’s processing, storage, and selling decisions as well as the long-time capacity investment strategy. He provided several interesting managerial insights and suggestions regarding to the production activities in similar uncertain environments. First, storage capacity should be adjusted in response to a change in output price volatility. Second, byproduct volume and margin considerations are important for overall profitability, and focusing only on main product profits while ignoring byproducts may lead to lost opportunities in certain markets and significant overall profit loss. Finally, overlooking yield uncertainty also has significant negative impact on the processor’s profitability. These insights were supported through both analytical and computational results using actual palm processing data.
Professor Boyabatli’s talk not only provided useful background knowledge of the palm industry practices, but also stimulated many thought provoking discussions among the seminar participants. Hopefully, more research can be inspired by linking the integrated supply chain risk management with industry practices among the faculty members and doctoral students after this talk.
Some of our faculty are strongly interested in risk management commodity processing industries, and the work of Professor Panos Kouvelis, Ling Dong and Danko Turcic examines interesting risk management aspects of such industries. At the same time we hope that relevant business research, like the one highlighted above, will intrigue industry executives and managers in improved practices effectively guiding their actual capacity and production planning processes.
Some biographical details of the presenting author: Onur Boyabatli is an Assistant Professor of Operations Management at the Lee Kong Chian School of Business, Singapore Management University. He earned his PhD degree in Technology and Operations Management from INSEAD, France. His primary research interest is on the integrated risk management in supply chain with application in agricultural industries.
