Technology and the art of the optimum

Above: Asst Prof Helen Zhou Yangfang (left) and Asst Prof Daniel Zheng Zhichao (right) at the SMU Lee Kong Chian School of Business Operations Management Summer Camp.

By Rebecca Tan

SMU Office of Research & Tech Transfer – New technologies can have a profound impact on businesses, helping to reduce costs, make operations more efficient, and thereby increase profitability. However, the relationship between technology and profit is not necessarily linear; using more technology does not always lead to a beneficial outcome.

In some cases, emerging technologies such as on-demand staffing platforms can help businesses reduce manpower costs while meeting their demand for labour. But in other cases, such as the adoption of energy storage in commercial buildings, using technology can paradoxically have a negative environmental impact.

These findings were presented by researchers participating in this year’s Operations Management Summer Camp, an annual event organised by the Operations Management group at Singapore Management University (SMU), at which faculty and postgraduate students shared their latest research and received feedback from leading academics.

The Summer Camp, which brought together researchers from institutions such as INSEAD, National University of Singapore, Nanyang Technological University and Singapore University of Technology and Design, was held on 18 August 2017 at SMU.

Making good help less hard to find

As any business owner will tell you, finding the right staff is one of the biggest challenges a company faces. Furthermore, the nature of jobs has started to change, with more people eschewing full time employment and opting for more flexible working hours.

To meet the changing needs of both employers and employees, companies such as Wonolo and Amazon’s Mechanical Turk have started offering online platforms to connect the two parties. These platforms act as digital intermediaries, matching demand with supply and charging for the service provided.

“From the research perspective, this is a two-sided market and the platforms are in the middle trying to serve both sides,” said SMU Assistant Professor Daniel Zheng Zhichao. “On-demand staffing platforms – and other similar companies in the sharing economy – have to face random supply and random demand; failure to handle mismatches between the two is one of the key reasons why many platforms fail.”

To investigate the circumstances under which on-demand staffing platforms are likely to thrive, Professor Zheng developed a model to coordinate the relationships between the three different players involved: the pool of freelancers, the employers looking for temporary staff and the platform itself.

In his proposed model, the supply of workers is random but will increase as the wages offered increases. Employers, on the other hand, follow a contract with three different components: a membership fee to use the platform; a fixed rate for each unit of manpower they receive; and a compensation component to compensate them for their understaffing costs should the platform not be able to meet their demand.

“Using this design as a mechanism to allocate resources and determine payments, it is possible to achieve a win-win-win situation for all three parties. The platform will enjoy some benefit from providing the service, the employers can reduce their staffing costs, and the workers will be able to set their own hours and work schedule,” Professor Zheng explained.

“Although I think more work needs to be done to convince reviewers that this stylistic model is a good representation of what exists, I’ve learnt a lot about the topic of the on-demand economy from your paper and I can see many opportunities for this kind of research,” said Professor Nils Rudi from INSEAD, the discussant of the paper.

Challenging conventional wisdom

On its own, technology is neither good nor bad; its impact depends on the conditions under which it is used. This principle was demonstrated in SMU Assistant Professor Helen Zhou Yangfang’s work on energy storage in the commercial sector, which revealed that the use of batteries can sometimes have unintended negative effects on the environment.

“Energy storage is very important for electric grids – it can help to match demand and supply and support the growth of renewable energy use,” said Professor Zhou.

“Because of the potential economic value of energy storage, governments have been trying to encourage its adoption. California, for example, has mandated 1.3 gigawatt power capacity from energy storage by 2020. However, the environmental impact of battery storage is not well understood at all,” she added.

In her paper, Professor Zhou modelled the impact of energy storage in commercial buildings trying to reduce their overall energy costs, calibrating the model with real-world data from 77 commercial buildings in the US. Contrary to the expectation that energy storage would lower the environmental impact of commercial buildings, she found that optimal energy storage would in fact increase emissions.

“In trying to reduce the demand charge imposed by the utility company, commercial electricity users will try to store electricity when the demand is low and discharge the battery when the load is high,” she explained.

However, the load is usually low during the night when coal plants are the marginal generators and thus will be deployed to satisfy any extra unit of electricity demand, while natural gas is typically the marginal generators during the day when the load is higher, Professor Zhou continued. Therefore, charging when the load is low effectively displaces cleaner sources of energy, and the net effect is an increase in emissions.

“One of the things I liked in this research was how the model was calibrated; there was data from a number of different sources that added a lot of credibility to the results,” said paper discussant Professor L. Beril Toktay, faculty director of the Ray C. Anderson Center for Sustainable Business at the Georgia Institute of Technology.

“The cost of storage has gone down six-fold in the last seven years, so we expect to see more large-scale adoption. The kinds of questions that Helen has asked about how storage should be optimally managed will become very important,” she concluded.

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