Title: Disruption and Rerouting in Supply Chain Networks
We study systemic risk in a supply chain network where firms are connected through purchase orders. Firms can be hit by cost or demand shocks, which can cause defaults. These shocks propagate through the supply chain network via input-output linkages between buyers and suppliers. Firms endogenously take contingency plans to mitigate the impact generated from disruptions. We show that, as long as firms have large initial equity buffers, network fragility is low if both buyer diversification and supplier diversification are low. We find that a single-sourcing strategy is beneficial for a firm only if the default probability of the firm’s supplier is low. Otherwise, a multiple-sourcing strategy is ex post more cost effective for a firm. Funding: J.R. Birge acknowledges financial support from the University of Chicago Booth School of Business. The research of A. Capponi has been supported by the NSF/CMMI CAREER-1752326 award. P.-C. Chen acknowledges financial support from the Research Grant Council of Hong Kong [Early Career Scheme Grant 27210118]. Supplemental Material: The e-companion is available at https://doi.org/10.1287/opre.2022.2409 . more »« less
his research examines supply chain collaboration effects on organizational performance in global value chain (GVC) infrastructure by focusing on GVC disaggregation, market turbulence, inequality, market globalization, product diversity, exploitation, and technological breakthroughs. The research strives to develop a better understanding of global value chains through relational view, behavioral, and contingency theories along with institutional and stakeholder theories of supply chains. Based on conflicting insights from these theories, this research investigates how relationships and operational outcomes of collaboration fare when market turbulence is present. Data is obtained and analyzed from focal firms that are engaged in doing business in emerging markets (e.g., India), and headquartered in the United States. We investigate relational outcomes (e.g., trust, credibility, mutual respect, and relationship commitment) among supply chain partners, and found that these relational outcomes result in better operational outcomes (e.g., profitability, market share increase, revenue generation, etc.). From managerial standpoint, supply chain managers should focus on relational outcomes that can strengthen operational outcomes in GVCs resulting in stronger organizational performance. The research offers valuable insights for theory and practice of global value chains by focusing on the GVC disaggregation through the measurement of market turbulence, playing a key role in the success of collaborative buyer–supplier relationships (with a focus on US companies doing business in India) leading to an overall improved firm performance.
A financial network is a web of contracts between firms. Each firm wants the best possible contracts. However, a contract between two firms requires the cooperation of both firms. This contest between cooperation and competition is studied in “Incentive-Aware Models of Financial Networks” by Akhil Jalan, Deepayan Chakrabarti, and Purnamrita Sarkar. They show how contract negotiations lead to a stable network where no firm wants to change contract sizes. In this network, the size of any contract depends on the beliefs of all firms, not just the contract’s two parties. Minor news about one firm can affect these beliefs, causing drastic changes in the network. Moreover, under realistic settings, a regulator cannot trace the source of such changes. This research illustrates the importance of firms’ beliefs and their implications for network stability. The insights could inform regulatory strategies and financial risk management.
Supply chain complexity is perceived to exacerbate the supply disruptions or shocks experienced by a city. Here, we calculate two network measures of supply chain complexity based on the relative number—horizontal complexity—and relative strength—vertical complexity—of a city’s suppliers. Using a large dataset of more than 1 million annual supply flows to 69 major cities in the United States for 2012–2015, we show that a trade-off pattern between horizontal and vertical complexity tends to characterize the architecture of urban supply networks. This architecture shapes the resistance of cities to supply chain shocks. We find that a city experiences less intense shocks, on average, as supplier relative diversity (horizontal complexity) increases for more technologically sophisticated products, which may serve as a mechanism for buffering cities against supply chain shocks. These results could help cities anticipate and manage their supply chain risks.
Firms do not continue and prosper purely on their own individual endeavors, as each firm is influenced by the activities of others, and thus direct and indirect relationships shape the firm’s strategic management. These relationships form the tactics by which knowledge and other strategically important resources are accessed and created. Forming and maintaining ties among members of a network have been the subject for numerous research studies in the social, economic, and business literature. Our work is framed by the resource-based view of the firm perspective along with social capital theory and its shared constructs in network theory. Prior findings suggest that networking ties are strategic actions generated for firm growth and continuance. The ties may be short-term or develop into long-term relationships. The purpose of this research is to fill some of the gaps in interorganizational networking strategy by analyzing five antecedents that have been suggested in the literature as individually associated with entrepreneurs’ engagement in network ties. In this way, our work provides another research avenue for examining networking’s contribution to strategic management. We hypothesized positive connections to entrepreneurs’ engagement in network ties from antecedents involving the firm’s knowledge absorptive capacity, business goals, entrepreneurial orientation, social interactions, and support from their environment. We tested our proposed macrolevel direct and moderating connections through an online survey of 125 U.S. apparel manufacturing firms. The apparel manufacturing sector in the U.S., as in many countries, has struggled with multiple disrupting factors contributing to the sector’s decline in firm continuance. Networks, serving to build domestic and international supply chain ties, may provide one solution for adapting the firm’s resources enhancing global competitiveness. Findings from OLS regression analyses support our hypothesized connections in that each of the five antecedents significantly contributed to entrepreneurs’ engagement in network ties; however, when all five were collectively examined only absorptive capacity, social interaction, and business goals were significant (R2 = 0.58). Further examination of moderation effects found the entrepreneurs’ perceptions of a supportive environment to modify both entrepreneurial orientation and business goals. The effects of a supportive environment on business goals’ relationship with network ties were greater when perceptions of a supportive environment decreased, while the effects of a supportive environment on entrepreneurship orientation’s relationship with network ties were greater when perceptions of a supportive environment increased. Future studies may direct attention to other industry sectors or countries for replication with larger sample sizes as we recognize the limitations to generalizability and scale refinement due to our limited sample size. Examining the five constructs sheds light on how an organization’s decisions may relate to engaging in networking and provides theoretical as well as practical implications that contributes to the larger organizational system framework. This dataset contains responses from 97 U.S. apparel manufacturers collected via an online survey during the fall of 2019. The apparel manufacturing sector in the U.S., as in many countries, has struggled with multiple disrupting factors contributing to the sector’s decline in firm continuance. Networks, serving to build domestic and international supply chain ties, may provide one solution for adapting the firm’s resources enhancing global competitiveness. The purpose of the study was to examine connections to entrepreneurs’ engagement in network ties from antecedents involving the firm’s knowledge absorptive capacity, business goals, entrepreneurial orientation, social interactions, and support from their environment.
This paper studies an inventory management problem faced by an upstream supplier that is in a collaborative agreement, such as vendor-managed inventory (VMI), with a retailer. A VMI partnership provides the supplier an opportunity to manage in- ventory for the supply chain in exchange for point-of-sales (POS)- and inventory-level information from the retailer. However, retailers typically possess superior local market information and as has been the case in recent years, are able to capture and analyze customer purchasing behavior beyond the traditional POS data. Such analyses provide the retailer access to market signals that are otherwise hard to capture using POS information. We show and quantify the implication of the financial obligations of each party in VMI that renders communication of such important market signals as noncredible. To help insti- tute a sound VMI collaboration, we propose learn and screen—a dynamic inventory mechanism—for the supplier to effectively manage inventory and information in the supply chain. The proposed mechanism combines the ability of the supplier to learn about market conditions from POS data (over multiple selling periods) and dynamically de- termine when to screen the retailer and acquire his private demand information. Inventory decisions in the proposed mechanism serve a strategic purpose in addition to their classic role of satisfying customer demand. We show that our proposed dynamic mechanism significantly improves the supplier’s expected profit and increases the efficiency of the overall supply chain operations under a VMI agreement. In addition, we determine the market conditions in which a strategic approach to VMI results in significant profit im- provements for both firms, particularly when the retailer has high market power (i.e., when the supplier highly depends on the retailer) and when the supplier has relatively less knowledge about the end customer/market compared with the retailer.
Birge, John R., Capponi, Agostino, and Chen, Peng-Chu. Disruption and Rerouting in Supply Chain Networks. Retrieved from https://par.nsf.gov/biblio/10399646. Operations Research . Web. doi:10.1287/opre.2022.2409.
Birge, John R., Capponi, Agostino, & Chen, Peng-Chu. Disruption and Rerouting in Supply Chain Networks. Operations Research, (). Retrieved from https://par.nsf.gov/biblio/10399646. https://doi.org/10.1287/opre.2022.2409
@article{osti_10399646,
place = {Country unknown/Code not available},
title = {Disruption and Rerouting in Supply Chain Networks},
url = {https://par.nsf.gov/biblio/10399646},
DOI = {10.1287/opre.2022.2409},
abstractNote = {We study systemic risk in a supply chain network where firms are connected through purchase orders. Firms can be hit by cost or demand shocks, which can cause defaults. These shocks propagate through the supply chain network via input-output linkages between buyers and suppliers. Firms endogenously take contingency plans to mitigate the impact generated from disruptions. We show that, as long as firms have large initial equity buffers, network fragility is low if both buyer diversification and supplier diversification are low. We find that a single-sourcing strategy is beneficial for a firm only if the default probability of the firm’s supplier is low. Otherwise, a multiple-sourcing strategy is ex post more cost effective for a firm. Funding: J.R. Birge acknowledges financial support from the University of Chicago Booth School of Business. The research of A. Capponi has been supported by the NSF/CMMI CAREER-1752326 award. P.-C. Chen acknowledges financial support from the Research Grant Council of Hong Kong [Early Career Scheme Grant 27210118]. Supplemental Material: The e-companion is available at https://doi.org/10.1287/opre.2022.2409 .},
journal = {Operations Research},
author = {Birge, John R. and Capponi, Agostino and Chen, Peng-Chu},
}
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