2008 Headlines
Vishal Gaur Receives 2008 Best Paper Award
"Hedging Inventory Risk Through Market Instruments" selected by Manufacturing & Service Operations Management
August 27, 2008 | Ithaca, NY | Vishal Gaur, associate professor of operations management at the Johnson School at Cornell University, received the 2008 best paper award from Manufacturing & Service Operations Management for his paper "Hedging Inventory Risk Through Market Instruments" co-authored by Sridhar Seshadri, professor at University of Texas at Austin. For this annual prize, the M&SOM editorial board reviews papers published in each of the three prior volumes of the journal and selects the winning paper based on its contribution to the theory and practice of operations management.
The paper explores how to use financial market information to improve demand forecasting and inventory planning, and how to use financial contracts to mitigate the risk in carrying inventory. The findings of this paper are especially relevant in the current economy as retailers are reporting less than predicted sales and store closings. The authors found a positive correlation (R2 = 0.81) between same-store sales growth among 60 large U.S. general merchandisers and annual returns to the S&P 500 index. Gaur and Seshadri suggest that price information of the financial asset can be used to determine both the optimal inventory level and the hedge. This enables the decision maker to update the demand forecast and the financial hedge information as more information becomes available, and ultimately leads to lower risk and higher return on inventory investment.
According to Gérard Cachon, the journal's editor and the Fred Sullivan Professor and Professor of Operations and Information Management at the University of Pennsylvania's Wharton School of Business, "the strength of this paper is not that it ends a line of research but rather that it starts a vein of research with significant promise. The paper's blend of analytics and data is undeniably powerful: not only will these results influence academics, these results have the potential to impact practice."
The award announcement and the editor's comments were published in the Summer 2008 issue of M&SOM. Gaur and Seshadri's paper appeared in the journal in the Spring 2005 issue. The authors of the paper are part of the team that recently received a three year grant from the National Science Foundation to better understand how volatility of prices and demand affect supply chain risk and how to use market factors to design inventory and production systems.
