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CHAPTER SEVENTEEN
Discussion Questions
1. What are the three pillars of sustainable development according to the 2005
World Summit of the United Nations?
The three pillars of sustainable development are
• Economic
• Environmental
• Social Sustainability
2. Why has the focus on sustainability increased as the economies in large countries
such as Brazil, China, and India have grown?
Emerging economies such as Brazil, China, and India are very large, which means
the provision of goods to these markets would require significant resources. This
puts a lot of pressure on global resources to the point that some resources would
be exhausted. As these markets are only emerging, there is time to put measures
in place to minimize the impact on the world’s resources while allowing growth
to take place. Therefore, supply chains need to become more sustainable so that
the world’s resources and environment may be maintained.
3. What are some of the primary challenges that the world faces in implementing
social arrangements, such as cap-and-trade and emission taxes, to encourage
supply chain sustainability? What are the essential requirements to implement
mutual coercion?
While attempts have been made to develop mechanisms such as cap-and-trade
and emission tax to address the “tragedy of the commons” their implementation
to-date has been very slow. This is partially due to the fact there is still
considerable debate among experts about which of these mechanisms is the most
appropriate. The challenge is further increased as the state of the environment
affects all parts of the world. The lack of consensus and the complexity of finding
a solution that suits all parties poses significant challenges to achieving supply
chain sustainability. However, these challenges must be overcome as the
alternative is unthinkable.
Global coordination in the implementation of mutual coercion is critical. Without
such coordination, market mechanisms will not be effective in controlling
emissions. The need for global coordination is particularly important not only for
controlling emissions from developed regions but also from developing
economies whose future emissions need to be monitored and effectively
controlled to enable sustainable supply chain management. Solutions must extend
to developing countries to ensure good practices from the start.
,4. What are some problems with firms reporting their sustainability performance
based on metrics that do not consider their extended supply chain?
Students answers may vary.
5. Study the CSR reports for a couple of firms, such as Whirlpool and IKEA.
Identify actions across a few supply chain drivers that have improved
sustainability. Which areas has the company found challenging to improve?
Suggestions: Online, you can find the 2016 Whirlpool Sustainability Report, the
2017 IKEA Sustainability Summary Report, the 2016 Daimler Sustainability
Report, and the 2016 French Connection Annual Report (copyright limitations
prohibit hyperlinking or including these reports within this manual).
References:
Whirlpool Sustainability Report
http://assets.whirlpoolcorp.com/files/Whirlpool-Corporation-2016-SR.pdf
IKEAs Sustainability Summary Report
http://www.ikea.com/ie/en/this-is-ikea/people-planet/
Daimler Sustainability Report:
https://www.daimler.com/sustainability/
French Connection Annual Report:
https://www.frenchconnection.com/stormsites/fcuk/media/pdf/IR/year%20ended
%2031%20January%202016.pdf
6. Discuss the various options available for the pricing of emissions. What are the
dimensions that can be used to evaluate an emissions pricing mechanism?
Greenhouse gases (GHGs) represent a real threat to the environment and urgently
need to be reduced globally. It has been found that firms need to be forced or
coerced into reducing their GHGs or made pay for the social cost of their
emission. Emission pricing is viewed as being one of the most cost-effective ways
to achieve emissions reductions. Two pricing options that have been proposed
include carbon tax and cap-and-trade both of which link the price with emission
output. Gaining an understanding of the actual cost of emissions to individuals
and/or society has proven difficult. Without accurate costs setting the correct
taxes and value of allowances is a challenge and may have put firms off reducing
their emissions. A hybrid cap-and-trade system as suggested by Goulder and
Schein (2013) may be the solution. A ceiling allows additional allowances to be
added if the ceiling price is reached and allowances may be removed if the floor
,price is reached. Control over pricing results in a more stable emission pricing
system that would achieve more buy in from firms along the supply chain.
The following dimensions may be used to evaluate an emissions pricing
mechanism:
• Cost of administration
• Price volatility
• Emission uncertainty
• New information uncertainty
• Industry competitiveness
• Wealth transfer to energy-exporting countries
• Revenue neutrality
, CHAPTER SIXTEEN
Discussion Questions
1. In what ways can a retailer such as Nordstrom take advantage of revenue
management opportunities?
Nordstrom can take advantage of revenue management by using dynamic pricing
through their Nordstrom Rack stores. Dynamic pricing is the tactic of varying
price over time and is suitable for fashion and seasonal items. The Nordstrom
Rack website indicates that there are currently 49 locations in 18 states and that
the Nordstrom Rack stores are the off-price division of Nordstrom (positioned for
the cost-conscious shopper). Merchandise that does not sell at the Nordstrom
stores is discounted 50–75 percent and moved to the Rack stores where it is sold
in a less attractive setting with a less generous return policy. Nordstrom Rack is
positioned such that it does not compete with Nordstrom stores, but allows the
parent company to reap the greatest return from all products stocked at
Nordstrom.
Within the Nordstrom store itself, revenue management can be used to adjust
prices over time based on available inventory and anticipated demand. For
example, if demand is less than anticipated, Nordstrom can drop prices in the
store to spur additional demand.
2. What revenue management opportunities are available to a manufacturer? How
can it take advantage of these opportunities?
A manufacturer’s most profitable use of revenue management comes through the
tactic of overbooking, which is the overselling of an available asset that faces last-
minute cancellations of customer orders. The manufacturer’s valuable asset is
production capacity, which is finite and loses value after a certain date; in this
case, capacity is worthless at the end of the production period or past the date that
the supply chain can fill customer orders. The tradeoff is the cost of unused
capacity with the cost of customer orders that can’t be filled and therefore must be
subcontracted. The manufacturer can compute the marginal cost of wasted
capacity and the marginal cost of a capacity shortage, form the critical ratio, and
apply this to their knowledge of the customer order distribution, thereby
increasing asset utilization.
A manufacturer can also use revenue management by adjusting the price charged
based on the lead time provided by the customer. Customers who require a shorter
lead time are charged a higher price while customers who can tolerate a longer
lead time are charged a lower price. The key decision made by the manufacturer
in this case is the amount of capacity to reserve for the higher price segment
whose order arrive later in time.
CHAPTER SEVENTEEN
Discussion Questions
1. What are the three pillars of sustainable development according to the 2005
World Summit of the United Nations?
The three pillars of sustainable development are
• Economic
• Environmental
• Social Sustainability
2. Why has the focus on sustainability increased as the economies in large countries
such as Brazil, China, and India have grown?
Emerging economies such as Brazil, China, and India are very large, which means
the provision of goods to these markets would require significant resources. This
puts a lot of pressure on global resources to the point that some resources would
be exhausted. As these markets are only emerging, there is time to put measures
in place to minimize the impact on the world’s resources while allowing growth
to take place. Therefore, supply chains need to become more sustainable so that
the world’s resources and environment may be maintained.
3. What are some of the primary challenges that the world faces in implementing
social arrangements, such as cap-and-trade and emission taxes, to encourage
supply chain sustainability? What are the essential requirements to implement
mutual coercion?
While attempts have been made to develop mechanisms such as cap-and-trade
and emission tax to address the “tragedy of the commons” their implementation
to-date has been very slow. This is partially due to the fact there is still
considerable debate among experts about which of these mechanisms is the most
appropriate. The challenge is further increased as the state of the environment
affects all parts of the world. The lack of consensus and the complexity of finding
a solution that suits all parties poses significant challenges to achieving supply
chain sustainability. However, these challenges must be overcome as the
alternative is unthinkable.
Global coordination in the implementation of mutual coercion is critical. Without
such coordination, market mechanisms will not be effective in controlling
emissions. The need for global coordination is particularly important not only for
controlling emissions from developed regions but also from developing
economies whose future emissions need to be monitored and effectively
controlled to enable sustainable supply chain management. Solutions must extend
to developing countries to ensure good practices from the start.
,4. What are some problems with firms reporting their sustainability performance
based on metrics that do not consider their extended supply chain?
Students answers may vary.
5. Study the CSR reports for a couple of firms, such as Whirlpool and IKEA.
Identify actions across a few supply chain drivers that have improved
sustainability. Which areas has the company found challenging to improve?
Suggestions: Online, you can find the 2016 Whirlpool Sustainability Report, the
2017 IKEA Sustainability Summary Report, the 2016 Daimler Sustainability
Report, and the 2016 French Connection Annual Report (copyright limitations
prohibit hyperlinking or including these reports within this manual).
References:
Whirlpool Sustainability Report
http://assets.whirlpoolcorp.com/files/Whirlpool-Corporation-2016-SR.pdf
IKEAs Sustainability Summary Report
http://www.ikea.com/ie/en/this-is-ikea/people-planet/
Daimler Sustainability Report:
https://www.daimler.com/sustainability/
French Connection Annual Report:
https://www.frenchconnection.com/stormsites/fcuk/media/pdf/IR/year%20ended
%2031%20January%202016.pdf
6. Discuss the various options available for the pricing of emissions. What are the
dimensions that can be used to evaluate an emissions pricing mechanism?
Greenhouse gases (GHGs) represent a real threat to the environment and urgently
need to be reduced globally. It has been found that firms need to be forced or
coerced into reducing their GHGs or made pay for the social cost of their
emission. Emission pricing is viewed as being one of the most cost-effective ways
to achieve emissions reductions. Two pricing options that have been proposed
include carbon tax and cap-and-trade both of which link the price with emission
output. Gaining an understanding of the actual cost of emissions to individuals
and/or society has proven difficult. Without accurate costs setting the correct
taxes and value of allowances is a challenge and may have put firms off reducing
their emissions. A hybrid cap-and-trade system as suggested by Goulder and
Schein (2013) may be the solution. A ceiling allows additional allowances to be
added if the ceiling price is reached and allowances may be removed if the floor
,price is reached. Control over pricing results in a more stable emission pricing
system that would achieve more buy in from firms along the supply chain.
The following dimensions may be used to evaluate an emissions pricing
mechanism:
• Cost of administration
• Price volatility
• Emission uncertainty
• New information uncertainty
• Industry competitiveness
• Wealth transfer to energy-exporting countries
• Revenue neutrality
, CHAPTER SIXTEEN
Discussion Questions
1. In what ways can a retailer such as Nordstrom take advantage of revenue
management opportunities?
Nordstrom can take advantage of revenue management by using dynamic pricing
through their Nordstrom Rack stores. Dynamic pricing is the tactic of varying
price over time and is suitable for fashion and seasonal items. The Nordstrom
Rack website indicates that there are currently 49 locations in 18 states and that
the Nordstrom Rack stores are the off-price division of Nordstrom (positioned for
the cost-conscious shopper). Merchandise that does not sell at the Nordstrom
stores is discounted 50–75 percent and moved to the Rack stores where it is sold
in a less attractive setting with a less generous return policy. Nordstrom Rack is
positioned such that it does not compete with Nordstrom stores, but allows the
parent company to reap the greatest return from all products stocked at
Nordstrom.
Within the Nordstrom store itself, revenue management can be used to adjust
prices over time based on available inventory and anticipated demand. For
example, if demand is less than anticipated, Nordstrom can drop prices in the
store to spur additional demand.
2. What revenue management opportunities are available to a manufacturer? How
can it take advantage of these opportunities?
A manufacturer’s most profitable use of revenue management comes through the
tactic of overbooking, which is the overselling of an available asset that faces last-
minute cancellations of customer orders. The manufacturer’s valuable asset is
production capacity, which is finite and loses value after a certain date; in this
case, capacity is worthless at the end of the production period or past the date that
the supply chain can fill customer orders. The tradeoff is the cost of unused
capacity with the cost of customer orders that can’t be filled and therefore must be
subcontracted. The manufacturer can compute the marginal cost of wasted
capacity and the marginal cost of a capacity shortage, form the critical ratio, and
apply this to their knowledge of the customer order distribution, thereby
increasing asset utilization.
A manufacturer can also use revenue management by adjusting the price charged
based on the lead time provided by the customer. Customers who require a shorter
lead time are charged a higher price while customers who can tolerate a longer
lead time are charged a lower price. The key decision made by the manufacturer
in this case is the amount of capacity to reserve for the higher price segment
whose order arrive later in time.
