Author's School

Supply Chain, Operations, and Technology

Author's School

Olin Business School

Language

English (en)

Date of Award

4-26-2024

Degree Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Chair and Committee

Panos Kouvelis

Committee Members

na

Abstract

The reason I decide on the title of my dissertation is that we are living at a tremendously special moment in history. The trade war between U.S. and China, the real war between Russia and Ukraine, and COVID-19 all indicate the turbulence and uncertainty we face. Artificial intelligence and the potential room temperature superconductor are the technology part. I believe high-quality research work should be based on history and reflect the timely reality. I am passionate about combining the “major event” with my relatively small ``specialization field," which is supply chain management. Talking about big events may be too broad and hollow. Hence I start with a small and specific question in my first Chapter: what is the impact of uncertain trade policy on a multinational company’s manufacturing strategy in a global supply chain setting? In Chapter 1 "Flexibility Value of Reshoring Capacity under Import Cost Uncertainty and Domestic Competition", companies that operate global supply chains are facing increasing uncertainty in the cost of imported goods---both finished products as well as raw materials. This has prompted companies to rethink the need for a diversified global supply chain, particularly by adding an onshore/nearshore production location to the current offshore location. This chapter adopts a game-theoretic model to analyze a global firm's reshoring capacity, output quantity, and production decisions in the presence of domestic market competition. We account for uncertainties around market demand and import costs at both the raw-material (RM) and finished-goods (FG) level. We show that an increase in the average RM cost will reduce reshoring capacity investment, but the impact of the FG cost is ambiguous. We identify two opposite effects in the increase of FG cost: (1) an overflow demand effect---present when demand is high and exceeds an overflow threshold, and unsatisfied production must overflow to the offshore location. This effect encourages more reshoring capacity investment when the FG cost increases; and (2) an output quantity effect that leads to a reduction of the reshoring investment due to a higher expected unit cost of production. The direction of change in the reshoring investment depends on the dominant effect among the above two. We also find that when the cost disadvantage of onshore relative to offshore sourcing is large (small), the presence of domestic competition can lead to more (less) reshoring. Although higher import costs hurt the global firm's profit, the domestic competitor can sometimes benefit. Our research shows that reshoring some manufacturing back to the home country can provide operational flexibility and increase a global firm's competitiveness in an uncertain environment. The reshoring investment decision depends critically on which type (RM or FG) of imports is most affected by industrial and trade policies, and the intensity of competition in the domestic market. An ongoing follow-up work in the second Chapter asks the question: What if the uncertainties are rooted in the supply chain structure itself? How should a global firm determine his sourcing strategy facing demand-side and supply-side uncertainty? Chapter 2 "Sourcing Strategy under Demand Uncertainty and Supply Disruption" considers a global firm trying to serve country U's domestic market through offshoring production in a foreign country C. Due to the COVID-19 pandemic, international trade tensions, wars, typhoons, or other unexpected disruptions, container ships get stuck outside congested ports. It leads to the uncertain time between placing an order and actually receiving the order, i.e., supply disruption. In addition, demand uncertainty usually comes along with and is even more prevalent than supply disruption. To hedge against such risks, the global firm can install domestic inventory, or source and produce locally. The former strategy requires establishment costs to set inventory. A pretty natural question we would like to ask is: What is the global firm's best sourcing strategy? Specifically, under what condition should the global firm keep offshoring? We find that Only inventory cost matters when there is no uncertainty at all. With the presence of demand uncertainty, the firm is less willing to offshore when he has flexibility. He could be more or less willing to offshore without flexibility. Another question is how supply disruption affects the global firm's sourcing strategy. The answer is that supply disruption increases the offshore inventory for low inventory prices, and decreases the inventory for high prices. In addition, we define ``Strategic capacity" as the expectation of the output quantity that is locally sourced and produced. Strategic capacity partially accounts for the inventory difference due to the global firm's flexibility. The third chapter studies the influence of technology innovation on a traditional agricultural supply chain. Specifically, how farmers’ purchasing behavior and the firm’s pricing strategy respond with respect to emerging agricultural drones. Chapter 3 "Selling Agri-Tech Products: Firm Strategy, Farmer Incentives, and Government Subsidy" notices with the development of technology, there are many emerging agri-technology products that can help with improving output. However, new products may be expensive or hard to use. We study the impact of agri-tech product adoption, like agricultural drones, on the traditional agriculture supply chain. Farmers' purchasing strategies, the firm's pricing decisions, and government subsidy schemes are considered. Since it requires a high capability of farmers to use the product properly, apart from selling agri-tech products, the firm may also sell professional services to help farmers. We find the best pricing strategy for the firm is to achieve either complete bundle selling or no bundle selling at all. And firm can free-ride farmers' high capability and gain more profits. In addition, four subsidy schemes are considered. Per-unit purchasing and per-unit selling subsidies are equivalent and are both dominated by the service subsidy if the government's budget is adequate. Output subsidy can be the best scheme if the government cares more for farmers.

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