Supply Chain Stress

Lan Luo

This dissertation contains three essays that study the risk management along the supply chain. In the first essay, entitled “Developing a Supply Chain Stress Test”, we propose an approach to “stress test” the ability of a given supply chain to deal with crises under extreme, but plausible, scenarios. Managers can use such a tool to assess the risk impacts of their respective supply chains. Using predictive global sensitivity analysis, we develop a single predictive structural equation that managers can use to predict the percentage loss given a disruption scenario, which allows managers to re-evaluate the chain promptly as conditions change. Managerial insights are observed from the proposed equation that can help mitigate the risk of a supply chain. Adopting the Conditional Value at Risk (CVaR) method, the second essay exams the impact of heavy-tailed demand distributions on optimal solutions when the demand is price-sensitive. Our numerical results show that the optimal pricing strategy strongly depends on the tail distribution and the objective function. In the net loss CVaR model and mean-loss CVaR model, a lower price should be utilized when the tail gets thinner. The total cost CVaR model involves a two-scheme policy: if the tail index is lower than a threshold, the lowest price should be considered; otherwise, the highest possible price should be taken. We also compare the optimal policies for heavy-tailed demand with normally distributed demand. Sensitivity analyses are conducted to further investigate how the parameters affect the optimal decisions. The third essay investigates information transfer effects of customer credit rating downgrades on supplier stock performance. We find that supplier firms experience negative returns around the announcement of customer firms’ rating downgrades. Moreover, supplier reactions are more pronounced for unanticipated downgrade events than anticipated downgrades of their customers. We also find that customer firms’ credit events have predictive power on their suppliers’ future downgrades. Such effects on suppliers’ stock abnormal returns are also determined by the strength of the supply-chain relationship, investor attention, and industrial factors. Our findings suggest that the supply chain is an important channel through which information is transferred between economically linked firms.

Supply Chain Stress

Files and links (1)

Abstract

Metrics

Details