Global Supply Chain Performance and Risk Optimization: The Value of Real Options Flexibility Demonstrated in the Global Automotive Industry

ISBN-13: 9783824475513 / Angielski / Miękka / 2002 / 267 str.

Smith, Rob

Opis

This doctoral dissertation deals with a very timely and important topic in the fields of international operations, finance and risk management, namely the evaluation of the Real Option value of operational and managerial flexibility within a global supply chain network. The author - who has worked for more than nine years on international supply chain strategy and design as an executive in world class automotive and high tech companies in the U. S. and in Europe - uses a large-scale data set from an existing global supply chain operated by a tier one supplier in the global automotive industry in examining and comparing the following supply chain strategies: single sourcing, dual sourcing, compliance with local-content rules, centers of excellence and Real Options with flexibility in sourcing, production and distribution logistics. The major finding of this empirical study is the identification of a Real Options strategy that results in a positive payback in less than a year and dominates all of the other supply chain strategies. The three main contributions of this work are: i) for the first time, a comprehen sive and real data set is utilized to quantify and demonstrate the financial performance of various supply chain design strategies, ii) a new model of real price changes, i. e."

Spis treści

1 Introduction.- 1.1 Motivation.- 1.2 Problem descriptions.- 1.2.1 Supply chain design challenges.- 1.2.2 Winning strategies make money.- 1.3 Roadmap.- 2 Literature review - basic theories and key contributions.- 2.1 Foreign exchange theory.- 2.1.1 Determination of exchange rates.- 2.1.2 Nominal versus real foreign exchange rates.- 2.1.3 Parity conditions in international finance and currency forecasting.- 2.1.3.1 Purchasing Power Parity (PPP).- 2.1.3.2 Fisher Effect (FE).- 2.1.3.3 International Fisher Effect (IFE).- 2.1.3.4 Interest Rate Parity (IRP).- 2.1.3.5 Forward rates as Unbiased predictors of Future spot Rates (UFR).- 2.1.4 Foreign Exchange Rates Modeling and Forecasting — Departures from parity.- 2.1.5 Lessard and Lightstone [1986].- 2.2 Foreign exchange risk management theory.- 2.2.1 Accounting exposure measurement and management.- 2.2.2 Economic exposure measurement and management.- 2.2.2.1 Transaction exposure and hedging techniques.- 2.2.2.2 Operating exposure.- 2.2.2.3 Currency of denomination versus currency of determination.- 2.2.2.4 Time.- 2.2.3 Coppé, Graham and Koller [1996].- 2.2.4 Luehrman [1997].- 2.2.5 The benefits and appropriate utilization of financial hedging.- 2.3 Real Options.- 2.3.1 Copeland, Koller, and Murrin [1995], Trigeorgis [1999] and Huchzermeier and Loch [2001].- 2.3.2 Leslie and Michaels [1998].- 2.3.2.1 Net Present Value versus Real Options Value, worked example.- 2.4 Global supply chain management.- 2.4.1 Example of a network model, DANTZIG [1963].- 2.4.1.1 Mathematical network model formulation.- 2.4.1.2 GAMS formulation of same DANTZIG (1963) network model.- 2.4.2 Kogut [1985].- 2.4.3 Cohen and Lee [1989].- 2.4.4 Kogut and Kulatilaka [1994A and 1994B].- 2.4.5 Arntzen, Brown, Harrison, and Trafton [1995].- 2.4.6 Huchzermeier [1991].- 2.4.7 Huchzermeier and Cohen [1996].- 2.4.8 Kouvelis and Sinha [1995] and Sinha [1996].- 2.4.9 Kouvelis [1996].- 2.4.10 Cohen and Mallik [1997].- 2.4.11 Dasu and Li [1997].- 2.4.12 Cohen And Huchzermeier [1998], and Huchzermeier [1999, 2000A and 2001].- 2.5 Recap of real option research and applications to date.- 2.5.1 Reuer and Leiblein [2000].- 3 Getting to Global - Building a Global supply chain Network Model.- 3.1 The GLBNET supply chain network structure.- 3.2 The process-based business case.- 3.3 The GLBNET Model description and formulation.- 3.3.1 Executive Summary of the GLBNET Model.- 3.3.2 The GLBNET Model GAMS Formulation.- 3.3.3 Excerpt from the GLBNET Executive Summary.- 3.3.4 The Optimization Solver — CPLEX 6.0.- 3.4 Introducing Foreign Exchange uncertainty into the GLBNET Model.- 3.5 Real Options Evaluation Methodology.- 4 The cost and value of Real Options Flexibility.- 4.1 Real Options add flexibility to the GLBNET supply chain.- 4.1.1 The Net Present Value Supply Chain.- 4.1.2 The Fully Flexible Real Options Supply Chain.- 4.1.3 A Realistic Real Options Supply Chain.- 4.2 Financial Performance - Flexibility makes money.- 4.2.1 The Base Case — Scenario 0.- 4.2.2 The Net Present Value Supply Chain — Model Runs 1-16.- 4.2.3 The Fully Flexible Real Options Supply Chain — Model Runs 17-32.- 4.2.4 The Realistic Real Options Supply Chain — Model Runs 17r – 32r.- 4.2.5 The Extrapolated Value of Real Options in the GLBNET supply chain.- 4.3 Real Options is the most profitable supply chain strategy.- 4.3.1 Modeling methodology detail and results interpretation for the Realistic Real Options versus alternative strategies.- 4.4 The Face of Flexibility — Value Added and Material Spend allocations under different FX scenarios.- 5 A Real Options Action Plan.- 5.1 Are Real Options appropriate for my supply chain?.- 5.2 Real Options Action Plan.- 5.2.1 Seize a first opportunity for Real Options.- 5.2.2 Structure the company’s organization to maximize Real Options.- 5.2.2.1 Appoint one executive responsible for both manufacturing and sourcing.- 5.2.2.2 Give the change agent worldwide responsibility.- 5.2.2.3 Establish a Real Options Operations (ROpOps) Team.- 5.2.3 Structure the company’s business and manufacturing processes for Real Options.- 5.2.3.1 Engineer lean, linear-labor manufacturing processes.- 5.2.3.2 Structure supplier development policies and contracts for Real Options.- 5.2.3.3 Structure Customer Quotations and Contracts for Real Options.- 5.3 Focus on the engine for continuous improvement — flexibility.- 6 Areas for further research.- 6.1 Contributions of this work.- 6.2 Suggestions for further research.- 6.2.1 Real Options Implementation Survey.- 6.2.2 Optimal duration of production period.- 6.2.3 Set-up time and switching costs.- 6.2.4 Process or expert system for exercising managerial options.- 6.2.5 Design for Foreign Exchange Rate Fluctuation (DFX).- 6.2.6 Five-currency Lattice Tree Model for use with the GLBNET Model and Solver.- 6.2.7 Include demand risk uncertainty in the GLBNET Model.- 6.2.8 Optimal combination of Currency Options and Real Options.- 6.3 Outlook.- References.- Appendices.- GLBNET Model GAMS formulation.- Mathematical formulation of the GLBNET Model.- Example Executive Summary Report.- Example Executive Sourcing Report.- Example GLBNET Log File.

O autorze

Dr. Rob Smith promovierte bei Prof. Dr. Arnd Huchzermeier am Lehrstuhl für Produktionsmanagement der WHU in Vallendar und ist als Executive im Bereich Supply Chain Management tätig.

Blurb

Today's trends toward increasing industry consolidation, globalization and platform product strategies underscore the importance of strategic supply chain design as a major business imperative. In parallel, Real Options theory is replacing net present value as the central paradigm for large-scale investment planning. Applied to operations, the Real Options strategy enables a firm to profit from flexibility designed into its supply chain.

Rob Smith quantifies the value of Real Options using an existing global supply chain designed to support world car vehicle platform production. The Real Options supply chain strategy is compared to four others prevalent in industry - Single Sourcing, Dual Sourcing, Local Content, and Centers of Excellence - and is demonstrated to yield superior financial results. The author presents an action plan for implementing Real Options as a guide to practitioners intent on exploiting the strategy's power to minimize foreign exchange risk and maximize the financial performance potential unique to global supply chain networks.