Essays on Risk Mitigation Methods in Global Supply Chain Management

In this dissertation, we study risk mitigation methods in the area of global supply chain management. Recent economic uncertainties such as the U.S. credit and the Greek debt crises, and natural disasters such as the Japanese tsunami create a greater amount of uncertainty and risk for global supply chain operations. The goal of the dissertation is to develop new prescriptive policies for multinational corporations and global relief organizations in order to assist them in mitigating the risks present in their operating environment in an effective manner. The first essay of the dissertation investigates how a multinational corporation can effectively hedge against the exchange-rate risk by structuring and managing a supply chain in a global setting. Economic uncertainties such as the U.S. credit crises and the debt concerns in southern European countries (e.g., Greece, Italy, Portugal and Spain) call for new policies in order to operate under an increased level of uncertainty. For example, even though the Japanese Yen and the US Dollar are considered to be more stable currencies, they have exhibit significant fluctuations in recent times, putting the US Dollar at its record low against the Yen on October 24, 2011, since the Great Depression. Naturally, such exchange rate fluctuations increase the need to develop new risk mitigation policies that would assist global corporations in managing the fluctuations in their global revenues and profits. This essay provides multinational corporations with prescriptions for ways to cope with the increased amount of global economic uncertainty. It demonstrates that production hedging, defined as producing and supplying less than the firm’s total global demand, can be an effective policy in minimizing the negative implications of the exchange-rate risk while maximizing global profits. The second essay of the dissertation examines how a global relief organization can effectively hedge against the risk of demand uncertainty in its distribution of essential products to the areas of urgent needs. It is commonly observed that deficiencies in information infrastructure or economic instability contribute to the adversity of forecasting the need for essential supplies. This study stems from recognizing the ineffectiveness in the distribution of humanitarian aid supply in countries of need. Such distribution inefficiencies can lead to harmful consequences for many people. United Nations Children’s Fund (UNICEF) reports that in 2007 alone, 9.2 million children worldwide under the age of five died from largely preventable causes. It is important to recognize that many of the well-developed theories are hard to apply in these countries because of inferior infrastructure and the unstable nature of the economy and political environment. Thus, it is critical to develop new policies and insights for the managers of humanitarian organizations in order to increase the efficiency of distribution operations under uncertainty. Specifically, the second essay of this dissertation demonstrates that a relief organization can minimize the risk of shortages by strategically utilizing its limited budget on procurement and the transportation of essential supplies. ESSAYS ON RISK MITIGATION METHODS IN GLOBAL SUPPLY CHAIN MANAGEMENT