Handbook of Integrated Risk Management in Global Supply Chains

Overview

Risk-control practices are often carried out by the finance function of a corporation without much input from other functional areas and lack of analysis on their impact of the supply chain and operational decisions. This book aims to bridge the gap in the literature by providing an unified approach to integrated risk management in finance and operations by identifying potential sources of risk to risk-control practices in supply chain and operational decisions. Current challenges in practice are discussed from a...

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Handbook of Integrated Risk Management in Global Supply Chains

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Overview

Risk-control practices are often carried out by the finance function of a corporation without much input from other functional areas and lack of analysis on their impact of the supply chain and operational decisions. This book aims to bridge the gap in the literature by providing an unified approach to integrated risk management in finance and operations by identifying potential sources of risk to risk-control practices in supply chain and operational decisions. Current challenges in practice are discussed from a managerial and business research perspective

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Product Details

Meet the Author

PANOS KOUVELIS, PhD, is Emerson Distinguished Professor of Operations and Manufacturing Management in the Olin Business School of Washington University in St. Louis, where he also serves as Director of the Boeing Center for Technology, Information and Manufacturing.

LINGXIU DONG, PhD, is Associate Professor of Operations and Manufacturing Management in the Olin Business School of Washington University in St. Louis.

ONUR OYABATLI, PhD, is Assistant Professor of Operations Management in the Lee Kong Chian School of Business at Singapore Management University.

RONG LI, PhD, is Assistant Professor of Operations Management in the Lee Kong Chian School of Business at Singapore Management University.

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Table of Contents

Contents

Foreword xiii

Preface xv

Acknowledgments xxiii

Contributors xxv

Part ONE

Foundations and Overview

1 Integrated Risk Management: A Conceptual Framework with Research Overview and Applications in Practice 3

1.1 Introduction, 3

1.2 An Action-Based Framework for Supply Chain Risk Management, 4

1.3 Risk Mitigation Strategies, 8

1.4 Research Opportunities, 10

Reference, 12

2 Risk Management and Operational Hedging: An Overview 13

2.1 Introduction, 13

2.2 Risk Management: Concept and Process, 14

2.3 Identification of Operational Hazards, 18

2.4 Risk Assessment and Valuation, 22

2.5 Tactical Risk Decisions and Crisis Management, 28

2.6 Strategic Risk Mitigation, 30

2.7 Four Operational Hedging Strategies, 33

2.8 Financial Hedging of Operational Risk, 36

2.9 Tailored Operational Hedging, 42

2.10 Guidelines for Operational Risk Management, 47

References, 48

3 The Effect of Supply Chain Disruptions on Corporate Performance 51

3.1 Introduction, 51

3.2 Sample, Performance Metrics, and Methodology, 53

3.3 The Effect of Supply Chain Disruptions on Corporate Performance, 55

3.4 Drivers of Supply Chain Disruptions, 63

3.5 What Can Firms Do To Mitigate the Chances of Disruptions?, 64

3.6 Summary, 72

A. Methodology Used To Estimate Stock Price Performance, 73

B. Methodology Used To Estimate Changes in Share Price Volatility, 75

C. Methodology Used To Estimate Changes in Profitability, 76

References, 76

4 Operational Strategies for Managing Supply Chain Disruption Risk 79

4.1 Introduction, 79

4.2 Stockpile Inventory, 82

4.3 Diversify Supply, 86

4.4 Backup Supply, 89

4.5 Manage Demand, 92

4.6 Strengthen Supply Chain, 96

4.7 Conclusions, 98

References, 100

5 Beyond Risk: Ambiguity in Supply Chains 103

5.1 Introduction to Risk and Ambiguity, 103

5.2 Ambiguity in a Single Period Newsvendor Setting, 109

5.3 Ambiguity in a Supply Chain Inventory Positioning Setting, 113

5.4 Conclusions, 120

References, 122

Part TWO

Integrated Risk Management: Operations and Finance Interface

6 Managing Storable Commodity Risks: Role of Inventories and Financial Hedges 127

6.1 Introduction, 127

6.2 Literature Review, 132

6.3 Problem Description, 133

6.4 Optimal Policy for Single Contract Financial Hedging, 137

6.5 Optimal Policy for a Portfolio of Financial Hedges, 142

6.6 Role of the Operational and Financial Hedges, 143

6.7 Example of Model Application and Results, 150

6.8 Managerial Insights and Conclusions, 153

References, 154

7 Integrated Production and Risk Hedging with Financial Instruments 157

7.1 Introduction, 158

7.2 Single Period Models, 159

7.3 Multiperiod Models, 177

7.4 Conclusion, 192

References, 193

8 Capacity Expansion As A Contingent Claim: Flexibility And Real Options In Operations 197

8.1 Introduction, 198

8.2 A Financial Option Pricing Model: Black Scholes (1973) and Merton (1973) Model, 201

8.3 Real Options Valuation (ROV) in Operations, 205

8.4 Conclusion, 214

References, 215

9 Financial Valuation of Supply Chain Contracts 219

9.1 Introduction, 220

9.2 Review of Financial Markets, Arbitrage, and Martingales, 223

9.3 A Model for Financial Valuation of Supply Chain Contracts, 226

9.4 Dual Formulation, 231

9.5 Experimental Study, 234

9.6 Conclusion, 243

References, 243

Part THREE

Supply Chain Finance

10 Supply Chain Finance 249

10.1 Introduction, 250

10.2 TheModel Setting, Common Notation and Assumptions, 253

10.3 Bankrupt-Prone Supply Chains under Wholesale Price Contracts, 255

10.4 Financing the Bankrupt-Prone Newsvendor with Trade Credit Contracts, 272

10.5 Conclusions and Future Research, 285

References, 286

11 The Role of Financial Services in Procurement Contracts 289

11.1 Introduction, 290

11.2 Model Description, 294

11.3 Wholesale Contract with a Budget Constraint (wT,QT), 298

11.4 Equilibrium Under a Credit Contract (QI,wI, ²I), 299

11.5 Equilibrium with External Financing (QE,wE), 307

11.6 Computational Experiments, 310

11.7 Concluding Remarks and Extensions, 315

References, 324

12 Production/Inventory Management and Capital Structure 327

12.1 Operations and Finance, 327

12.2 The Model, 329

12.3 Structural Properties of an Optimal Policy, 333

12.4 Characterization of the Optimal Policy, 337

12.5 Long-Term Decisions on Capital Structure, 346

12.6 Extensions and Variations of the Basic Model, 354

12.7 Concluding Remarks, 357

12.8 Bibliographical Notes, 358

References, 360

13 Bank Financing of Newsvendor Inventory: Coordinating Loan Schedules 363

13.1 Introduction, 364

13.2 The Stackelberg Game, 366

13.3 A Numerical Study, 370

13.4 Coordinating Loan Schedules, 377

13.5 Concluding Remarks, 380

References, 384

Part FOUR

Operational Risk Management Strategies

14 Decentralized Supply Risk Management 389

14.1 Introduction, 389

14.2 Literature Taxonomies, 394

14.3 Misalignment of Incentives, 398

14.4 Competing Suppliers, 398

14.5 Competing Manufacturers, 408

14.6 Asymmetric Information, 413

14.7 Conclusions, 419

References, 421

15 Using Supplier Portfolios to Manage Demand Risk 425

15.1 Introduction, 426

15.2 Literature Review, 428

15.3 A Static Model, 430

15.4 A Dynamic Model with Progressive Demand Revelation, 436

15.5 Conclusions, 442

References, 443

16 An Opportunity Cost View of Base-Stock Optimality for the Warehouse Problem 447

16.1 Introduction, 448

16.2 A Simple Motivating Example, 449

16.3 Model, 450

16.4 Base-Stock Optimality, 452

16.5 Managerial Aspects, 457

16.6 Conclusions, 460

References, 460

Part FIVE

Industrial Applications

17 Procurement Risk Management in Beef Supply Chains 465

17.1 Introduction, 465

17.2 Literature Review, 470

17.3 Model Description, 473

17.4 Computational Experiments for the Beef Supply Chain, 477

17.5 Discussion, 491

References, 493

18 Risk Management in Electric Utilities 495

18.1 Introduction, 495

18.2 Price Risk, 497

18.3 Volume Risk, 501

18.4 Other Risk Examples, 507

18.5 Summary, 511

References, 511

19 Supply Chain Risk Management: A Perspective from Practice 515

19.1 Defining Supply Chain Risk Management, 516

19.2 Understanding Your Supply Chain, 517

19.3 Developing SCRM Capabilities, 518

19.4 Process Approach to Supply Chain Risk Management, 523

19.5 Case Study: Cisco Responds to the Sichuan Earthquake, 527

19.6 The Importance of an International Standard in SCRM, 534

19.7 Conclusion, 534

20 A Bayesian Framework for Supply Chain Risk Management Using Business Process Standards 537

20.1 Introduction, 538

20.2 Related Literature, 541

20.3 A Framework for Supply Chain Risk Categorization, 543

20.4 Risk Quantification through Bayesian Learning, 545

20.5 Case Study: Risk Modeling for a Global Supply Chain, 550

20.6 Summary, 561

References, 562

Index 565

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