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.