On the Learning Benefits of Resource Flexibility
Information Systems and Operations Management
HEC Campus - Jouy-En-Josas - Bâtiment V - Salle Bernard Ramanantsoa
Abstract: Resource flexibility, arguably among the most celebrated operational concepts, is known to provide firms facing demand uncertainty with such benefits as risk pooling, revenue-maximization optionality, and operational hedging. In this article we uncover a heretofore unknown benefit: we establish that resource flexibility mitigates censoring of sales data, and thereby facilitates learning the true demand under a variety of practical settings, demand distributions, and model parameters. Further, we quantify these learning benefits of flexibility and find them to be of the same order of magnitude as the extensively studied risk pooling benefits of flexibility. This suggests that flexibility’s learning benefits could be a first-order consideration and that extant models, which view flexibility only as the ability to act ex post, could be underestimating its true value when learning the demand is desirable, for example, when it enables managers to make better-informed ex ante decisions in future periods.
Short Bio: Mihalis Markakis is an assistant professor of Production, Technology and Operations Management at IESE Business School. He holds a PhD from the Massachusetts Institute of Technology. Before joining IESE, he was with the faculty of Economics and Business at Universitat Pompeu Fabra.
He has held teaching positions at the Massachusetts Institute of Technology, the INSEAD Business School, and the London Business School, as well as a research position at the Bell Labs, Murray Hill, NJ, USA. He is the recipient of the Ramon y Cajal and the Juan de la Cierva fellowships from the Spanish government, and the COFUND fellowship from the Marie Curie Actions of the European Commission.
His research interests include service operations management, inventory management, and revenue management. More recently, his research has focused on learning problems arising in operations management, as well as on transportation economics. His work has been published in top academic journals, such as Management Science and Mathematics of Operations Research.