This special issue, which surveys the most recent research in integrated risk management for supply chains, is motivated by the success of the third “Supply Chain Finance & Risk Management Workshop,†which was held at the Olin Business School of Washington University in St. Louis, on May 14-15, 2017. The Editors wanted a more timely access to the latest research on supply chain finance and supply chain risk management. It is well-known, that due to review process lead times, articles published in traditional journals can take 2 to 3 years. The idea of producing an edited volume, which would include the latest articles on the topics above appealed not only to the workshop participants but also to other active members of the iFORM (Interface of Finance, Operations, and Risk Management) research community. Foundations and Trends in Technology, Information and Operations Management provides an ideal outlet for such a volume.
{"title":"Introduction to the Special Issue on Integrated Risk Management in Supply Chains","authors":"P. Kouvelis, Lingxiu Dong, Danko Turcic","doi":"10.1561/0200000059","DOIUrl":"https://doi.org/10.1561/0200000059","url":null,"abstract":"This special issue, which surveys the most recent research in integrated risk management for supply chains, is motivated by the success of the third “Supply Chain Finance & Risk Management Workshop,†which was held at the Olin Business School of Washington University in St. Louis, on May 14-15, 2017. The Editors wanted a more timely access to the latest research on supply chain finance and supply chain risk management. It is well-known, that due to review process lead times, articles published in traditional journals can take 2 to 3 years. The idea of producing an edited volume, which would include the latest articles on the topics above appealed not only to the workshop participants but also to other active members of the iFORM (Interface of Finance, Operations, and Risk Management) research community. Foundations and Trends in Technology, Information and Operations Management provides an ideal outlet for such a volume.","PeriodicalId":39990,"journal":{"name":"Foundations and Trends in Technology, Information and Operations Management","volume":"40 1","pages":"1-12"},"PeriodicalIF":0.0,"publicationDate":"2017-12-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"78408377","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Analytical research has suggested a link between financial and operational risk management and its impact on operational outcomes. In this chapter, we use the gold mining industry as an empirical context to explore the effects of risk management on inventory. Gold miners manage risk 1) financially by committing to sell gold through forward contracts and sold call options and 2) operationally by varying the grade of gold they process. We find that gold commitments and variable grading have clear effects on gold inventory, and that they could be viewed as complementary risk management strategies.
{"title":"Linking Commodity Price Risk and Operations: Evidence from the Gold Mining Industry","authors":"Panos Markou, D. Corsten","doi":"10.1561/0200000074","DOIUrl":"https://doi.org/10.1561/0200000074","url":null,"abstract":"Analytical research has suggested a link between financial and operational risk management and its impact on operational outcomes. In this chapter, we use the gold mining industry as an empirical context to explore the effects of risk management on inventory. Gold miners manage risk 1) financially by committing to sell gold through forward contracts and sold call options and 2) operationally by varying the grade of gold they process. We find that gold commitments and variable grading have clear effects on gold inventory, and that they could be viewed as complementary risk management strategies.","PeriodicalId":39990,"journal":{"name":"Foundations and Trends in Technology, Information and Operations Management","volume":"33 1","pages":"165-185"},"PeriodicalIF":0.0,"publicationDate":"2017-12-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"84955988","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper studies a periodic-review dual-sourcing inventory system with demand and supply capacity uncertainty. Compared with dual-sourcing models with deterministic supply capacities, a challenge here is that the objective functions in the dynamic programming recursions are not convex in the ordering quantities. To address this challenge, a powerful transformation technique is developed which converts a non- convex minimization problem to an equivalent convex minimization problem. In addition, the transformation preserves L-convexity, allowing one to derive structural properties of the optimal policies for the dual-sourcing problem with random supply capacity. Dual-index policies are shown to be optimal under certain conditions. The effects of supply capacity uncertainties on the system performance are investigated.
{"title":"Operational Hedging through Dual-Sourcing under Capacity Uncertainty","authors":"Xin Chen","doi":"10.1561/0200000078","DOIUrl":"https://doi.org/10.1561/0200000078","url":null,"abstract":"This paper studies a periodic-review dual-sourcing inventory system with demand and supply capacity uncertainty. Compared with dual-sourcing models with deterministic supply capacities, a challenge here is that the objective functions in the dynamic programming recursions are not convex in the ordering quantities. To address this challenge, a powerful transformation technique is developed which converts a non- convex minimization problem to an equivalent convex minimization problem. In addition, the transformation preserves L-convexity, allowing one to derive structural properties of the optimal policies for the dual-sourcing problem with random supply capacity. Dual-index policies are shown to be optimal under certain conditions. The effects of supply capacity uncertainties on the system performance are investigated.","PeriodicalId":39990,"journal":{"name":"Foundations and Trends in Technology, Information and Operations Management","volume":"72 5 1","pages":"46-64"},"PeriodicalIF":0.0,"publicationDate":"2017-12-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"83617986","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We consider the financial hedging of a random operational cash flow that arises in inventory operations with price and demand uncertainty. We use a variance minimization approach to find a financial portfolio that would minimize the total variance of operational and financial returns. For inventory models that involve continuous price fluctuations and price-dependent demand that arrives in continuous time, we characterize the minimum-variance hedging policies and numerically illustrate their effectiveness.
{"title":"Minimum-Variance Hedging for Managing Risks in Inventory Models with Price Fluctuations","authors":"Caner Canyakmaz, F. Karaesmen, S. Özekici","doi":"10.1561/0200000073","DOIUrl":"https://doi.org/10.1561/0200000073","url":null,"abstract":"We consider the financial hedging of a random operational cash flow that arises in inventory operations with price and demand uncertainty. We use a variance minimization approach to find a financial portfolio that would minimize the total variance of operational and financial returns. For inventory models that involve continuous price fluctuations and price-dependent demand that arrives in continuous time, we characterize the minimum-variance hedging policies and numerically illustrate their effectiveness.","PeriodicalId":39990,"journal":{"name":"Foundations and Trends in Technology, Information and Operations Management","volume":"105 1 1","pages":"107-123"},"PeriodicalIF":0.0,"publicationDate":"2017-12-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"76886114","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This special issue, which surveys the most recent research in supply chain finance, is motivated by the success of the third “Supply Chain Finance & Risk Management Workshop,†which was held at the Olin Business School of Washington University in St. Louis, on May 14-15, 2017. The Editors wanted a more timely access to the latest research on supply chain finance and supply chain risk management. It is well-known, that due to review process lead times, articles published in traditional journals can take 2 to 3 years. The idea of producing an edited volume, which would include the latest articles on the topics above appealed not only to the workshop participants but also to other active members of the iFORM (Interface of Finance, Operations, and Risk Management) research community. Foundations and Trends in Technology, Information and Operations Management provides an ideal outlet for such a volume.
{"title":"Introduction to the Special Issue on Supply Chain Finance","authors":"P. Kouvelis, Lingxiu Dong, Danko Turcic","doi":"10.1561/0200000058","DOIUrl":"https://doi.org/10.1561/0200000058","url":null,"abstract":"This special issue, which surveys the most recent research in supply chain finance, is motivated by the success of the third “Supply Chain Finance & Risk Management Workshop,†which was held at the Olin Business School of Washington University in St. Louis, on May 14-15, 2017. The Editors wanted a more timely access to the latest research on supply chain finance and supply chain risk management. It is well-known, that due to review process lead times, articles published in traditional journals can take 2 to 3 years. The idea of producing an edited volume, which would include the latest articles on the topics above appealed not only to the workshop participants but also to other active members of the iFORM (Interface of Finance, Operations, and Risk Management) research community. Foundations and Trends in Technology, Information and Operations Management provides an ideal outlet for such a volume.","PeriodicalId":39990,"journal":{"name":"Foundations and Trends in Technology, Information and Operations Management","volume":"41 1","pages":"209-219"},"PeriodicalIF":0.0,"publicationDate":"2017-12-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"85231770","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this paper we analyze a new model of crowdfunding recently introduced by Bolstr and Localstake. In this model, a platform acts as a matchmaker between a firm needing funds and a crowd of investors willing to provide capital. Once the firm is funded, it pays back the investors using revenue sharing contracts, with a pre-specified investment multiple and a revenue-sharing proportion, over an investment horizon of uncertain duration. The firm determines its optimal contract parameters to maximize its expected net present value, subject to investor participation constraints and platform fees. A natural multi-period formulation results in a non-convex stochastic optimization problem, which we solve numerically using Monte Carlo simulation and a grid-based optimization framework, for normally distributed cash flows that are parameterized using real data from Bolstr.
{"title":"Crowdfunding via Revenue-Sharing Contracts","authors":"Soraya Fatehi, Michael R. Wagner","doi":"10.1561/0200000071","DOIUrl":"https://doi.org/10.1561/0200000071","url":null,"abstract":"In this paper we analyze a new model of crowdfunding recently introduced by Bolstr and Localstake. In this model, a platform acts as a matchmaker between a firm needing funds and a crowd of investors willing to provide capital. Once the firm is funded, it pays back the investors using revenue sharing contracts, with a pre-specified investment multiple and a revenue-sharing proportion, over an investment horizon of uncertain duration. The firm determines its optimal contract parameters to maximize its expected net present value, subject to investor participation constraints and platform fees. A natural multi-period formulation results in a non-convex stochastic optimization problem, which we solve numerically using Monte Carlo simulation and a grid-based optimization framework, for normally distributed cash flows that are parameterized using real data from Bolstr.","PeriodicalId":39990,"journal":{"name":"Foundations and Trends in Technology, Information and Operations Management","volume":"52 1","pages":"407-424"},"PeriodicalIF":0.0,"publicationDate":"2017-12-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"83954709","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We study production planning integrated with risk hedging. In addition to using a one-time production quantity decision, made at the beginning of a planning horizon, as a way to manage demand uncertainty, we illustrate how to construct and execute a hedging strategy throughout the horizon, as a better and more effective approach to mitigating the risks involved. Furthermore, whereas traditional production planning models focus on the expected net-profit as an objective function, we study two risk measures, variance and shortfall. In both cases, we characterize the efficient frontier, and demonstrate the improved risk-return profile over a production-only decision.
{"title":"Integrated Production Planning and Risk Hedging","authors":"Liao Wang, D. Yao","doi":"10.1561/0200000072","DOIUrl":"https://doi.org/10.1561/0200000072","url":null,"abstract":"We study production planning integrated with risk hedging. In addition to using a one-time production quantity decision, made at the beginning of a planning horizon, as a way to manage demand uncertainty, we illustrate how to construct and execute a hedging strategy throughout the horizon, as a better and more effective approach to mitigating the risks involved. Furthermore, whereas traditional production planning models focus on the expected net-profit as an objective function, we study two risk measures, variance and shortfall. In both cases, we characterize the efficient frontier, and demonstrate the improved risk-return profile over a production-only decision.","PeriodicalId":39990,"journal":{"name":"Foundations and Trends in Technology, Information and Operations Management","volume":"16 1","pages":"89-106"},"PeriodicalIF":0.0,"publicationDate":"2017-12-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"82470880","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The primary focus of this paper is supply risk mitigation. though, its objectives are twofold. First, we develop a generic contingent claims model framed as an exercise in stochastic optimal control. The model is easily adjusted to a number of risk-based operational problems. Second, we adapt the model to the problem of supply uncertainty and the valuation of a fixed price contract with a focus on managing supply uncertainty through a portfolio based risk sharing framework. The risk and reward tradeoffs characterizing our general findings in this chapter indicate a subtle balance between supply risk, sourcing allocations and related costs, and accordingly, the resulting operational strategies considered. Given this setup, increased supplier-portfolio risk is a defining measure in establishing optimal operating policies, with the caveat that increases in the supplier portfolio’s volatility, also increase shortages which lowers the contract’s value.
{"title":"Managing Supply Risk in Fixed Price Contracts: A Contingent Claims Perspective","authors":"B. Kamrad, Ran Ji, Glen M. Schmidt","doi":"10.1561/0200000079","DOIUrl":"https://doi.org/10.1561/0200000079","url":null,"abstract":"The primary focus of this paper is supply risk mitigation. though, its objectives are twofold. First, we develop a generic contingent claims model framed as an exercise in stochastic optimal control. The model is easily adjusted to a number of risk-based operational problems. Second, we adapt the model to the problem of supply uncertainty and the valuation of a fixed price contract with a focus on managing supply uncertainty through a portfolio based risk sharing framework. The risk and reward tradeoffs characterizing our general findings in this chapter indicate a subtle balance between supply risk, sourcing allocations and related costs, and accordingly, the resulting operational strategies considered. Given this setup, increased supplier-portfolio risk is a defining measure in establishing optimal operating policies, with the caveat that increases in the supplier portfolio’s volatility, also increase shortages which lowers the contract’s value.","PeriodicalId":39990,"journal":{"name":"Foundations and Trends in Technology, Information and Operations Management","volume":"1 1","pages":"65-88"},"PeriodicalIF":0.0,"publicationDate":"2017-12-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"83453141","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Reverse factoring is a financial instrument that large creditworthy firms use to facilitate low cost financing to their suppliers by confirming future payment obligations to financial intermediaries. This paper studies the implications of reverse factoring on the buying firm’s capital investment decision in the face of deadweight costs for external financing. Our results show that the implementation of reverse factoring with payment terms extension can facilitate higher investment to the benefit of the integrated supply chain.
{"title":"Reverse Factoring: A Theory on the Value of Payment Terms Extension","authors":"S. Lekkakos, A. Serrano","doi":"10.1561/0200000063","DOIUrl":"https://doi.org/10.1561/0200000063","url":null,"abstract":"Reverse factoring is a financial instrument that large creditworthy firms use to facilitate low cost financing to their suppliers by confirming future payment obligations to financial intermediaries. This paper studies the implications of reverse factoring on the buying firm’s capital investment decision in the face of deadweight costs for external financing. Our results show that the implementation of reverse factoring with payment terms extension can facilitate higher investment to the benefit of the integrated supply chain.","PeriodicalId":39990,"journal":{"name":"Foundations and Trends in Technology, Information and Operations Management","volume":"70 1","pages":"270-288"},"PeriodicalIF":0.0,"publicationDate":"2017-12-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"73115239","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this paper, we first show how debt financing distorts the inventory decision of a multi–product retail firm. Protected by limited liability, a debt–financed retailer seeks risk by favoring items with a low salvage value, those with a high profit margin, and those that represent a large share of the total inventory investment. Second, we demonstrate that in many cases, this distortion can be avoided by using supplier financing. A supplier who automatically observes the retailer’s order quantities, can deter risk–seeking behavior on the part of the retailer with the threat of stricter credit terms. This provides suppliers with a financing advantage over banks, which can monitor inventory only at a cost.
{"title":"Agency Cost of Debt: A Case for Supplier Financing","authors":"J. Chod","doi":"10.1561/0200000061","DOIUrl":"https://doi.org/10.1561/0200000061","url":null,"abstract":"In this paper, we first show how debt financing distorts the inventory decision of a multi–product retail firm. Protected by limited liability, a debt–financed retailer seeks risk by favoring items with a low salvage value, those with a high profit margin, and those that represent a large share of the total inventory investment. Second, we demonstrate that in many cases, this distortion can be avoided by using supplier financing. A supplier who automatically observes the retailer’s order quantities, can deter risk–seeking behavior on the part of the retailer with the threat of stricter credit terms. This provides suppliers with a financing advantage over banks, which can monitor inventory only at a cost.","PeriodicalId":39990,"journal":{"name":"Foundations and Trends in Technology, Information and Operations Management","volume":"26 1","pages":"220-236"},"PeriodicalIF":0.0,"publicationDate":"2017-12-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"84657704","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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