The 2008 crash has left all the established economic doctrines - equilibrium models, real business cycles, disequilibria models - in disarray. Part of the problem is due to Smith’s "veil of ignorance": individuals unknowingly pursue society’s interest and, as a result, have no clue as to the macroeconomic effects of their actions: witness the Keynes and Leontief multipliers, the concept of value added, fiat money, Engel’s law and technical progress, to name but a few of the macrofoundations of microeconomics. A good viewpoint to take bearings anew lies in comparing the post-Great Depression institutions with those emerging from Thatcher and Reagan’s economic policies: deregulation, exogenous vs. endoge- nous money, shadow banking vs. Volcker’s Rule. Very simply, the banks, whose lending determined deposits after Roosevelt, and were a public service became private enterprises whose deposits determine lending. These underlay the great moderation preceding 2006, and the subsequent crash.

The Economic Institutions of Capitalism

行銷硏究 : Marketing research

Publisher Summary This chapter reviews the supply chain coordination with contracts. Numerous supply chain models are discussed. In each model, the supply chain optimal actions are identified. The chapter extends the newsvendor model by allowing the retailer to choose the retail price in addition to the stocking quantity. Coordination is more complex in this setting because the incentives provided to align one action might cause distortions with the other action. The newsvendor model is also extended by allowing the retailer to exert costly effort to increase demand. Coordination is challenging because the retailer's effort is noncontractible—that is, the firms cannot write contracts based on the effort chosen. The chapter also discusses an infinite horizon stochastic demand model in which the retailer receives replenishments from a supplier after a constant lead time. Coordination requires that the retailer chooses a large basestock level.

Supply Chain Coordination with Contracts

We study a single-product setting in which a firm can source from two suppliers, one that is unreliable and another that is reliable but more expensive. Suppliers are capacity constrained, but the reliable supplier may possess volume flexibility. We prove that in the special case in which the reliable supplier has no flexibility and the unreliable supplier has infinite capacity, a risk-neutral firm will pursue a single disruption-management strategy: mitigation by carrying inventory, mitigation by single-sourcing from the reliable supplier, or passive acceptance. We find that a suppliers percentage uptime and the nature of the disruptions (frequent but short versus rare but long) are key determinants of the optimal strategy. For a given percentage uptime, sourcing mitigation is increasingly favored over inventory mitigation as disruptions become less frequent but longer. Further, we show that a mixed mitigation strategy (partial sourcing from the reliable supplier and carrying inventory) can be optimal if the unreliable supplier has finite capacity or if the firm is risk averse.

Contingent rerouting is a possible tactic if the reliable supplier can ramp up its processing capacity, that is, if it has volume flexibility. We find that contingent rerouting is often a component of the optimal disruption-management strategy, and that it can significantly reduce the firms costs. For a given percentage uptime, mitigation rather than contingent rerouting tends to be optimal if disruptions are rare.

https://pubsonline.informs.org/doi/suppl/10.1287/mnsc.1060.0515/suppl_file/mnsc.1060.0515-sm-tomlin_companion_5_06.pdf

On the Value of Mitigation and Contingency Strategies for Managing Supply Chain Disruption Risks

Supply chain disruptions and the associated operational and financial risks represent the most pressing concern facing firms that compete in today's global marketplace. Extant research has not only confirmed the costly nature of supply chain disruptions but has also contributed relevant insights on such related issues as supply chain risks, vulnerability, resilience, and continuity. In this conceptual note, we focus on a relatively unexplored issue, asking and answering the question of how and why one supply chain disruption would be more severe than another. In doing so, we argue, de facto, that supply chain disruptions are unavoidable and, as a consequence, that all supply chains are inherently risky. Employing a multiple-method, multiple-source empirical research design, we derive novel insights, presented as six propositions that relate the severity of supply chain disruptions (i) to the three supply chain design characteristics of density, complexity, and node criticality and (ii) to the two supply chain mitigation capabilities of recovery and warning. These findings not only augment existing knowledge related to supply chain risk, vulnerability, resilience, and business continuity planning but also call into question the wisdom of pursuing such practices as supply base reduction, global sourcing, and sourcing from supply clusters.

The severity of supply chain disruptions: Design characteristics and mitigation capabilities

The power of flexibility for mitigating supply chain risks

We connect the mix-flexibility and dual-sourcing literatures by studying unreliable supply chains that produce multiple products. We consider a firm that can invest in product-dedicated resources and totally flexible resources. Product demands are uncertain at the time of resource investment, and the products can differ in their contribution margins. Resource investments can fail, and the firm may choose to invest in multiple resources for a given product to mitigate such failures.In comparing a single-source dedicated strategy with a single-source flexible strategy, we refine the common intuition that a flexible strategy is strictly preferred to a dedicated strategy when the dedicated resources are costlier than the flexible resource. We prove that this intuition is correct if the firm is risk neutral or if the resource investments are perfectly reliable. The intuition can be wrong, however, if both of these conditions fail to hold, because there is a resource-aggregation disadvantage to the flexible strategy that can dominate the demand pooling and contribution-margin benefits of the flexible strategy when resource investments are unreliable and the firm is risk averse.We investigate the influence that resource attributes, firm attributes, and product-portfolio attributes have on the attractiveness of various supply-chain structures that differ in their levels of mix flexibility and diversification, and we investigate the influence these attributes have on the optimal resource investments within a given supply-chain structure. Our results indicate that the appropriate levels of diversification and flexibility are very sensitive to the resource costs and reliabilities, the firm's downside risk tolerance, the number of products, the product demand correlations and the spread in product contribution margins.

On the Value of Mix Flexibility and Dual Sourcing in Unreliable Newsvendor Networks

Surveys suggest that supply chain risk is a growing issue for executives and that supplier reliability is of particular concern. A common mitigation strategy is for the buying firm to expend effort improving the reliability of its supply base. We explore a model in which a firm can source from multiple suppliers and/or exert effort to improve supplier reliability. For both random capacity and random yield types of supply uncertainty, we propose a model of process improvement in which improvement efforts (if successful) increase supplier reliability in the sense that the delivered quantity (for any given order quantity) is stochastically larger after improvement. We characterize the optimal procurement quantities and improvement efforts and generate managerial insights. For random capacity, improvement is increasingly favored over dual sourcing as the supplier cost heterogeneity increases, but dual sourcing is favored over improvement if the supplier reliability heterogeneity is high. In the random yield model, increasing cost heterogeneity can reduce the attractiveness of improvement, and improvement can be favored over dual sourcing if the reliability heterogeneity is high. A combined strategy (improvement and dual sourcing) can provide significant value if suppliers are very unreliable and/or capacity is low relative to demand.

Mitigating Supply Risk: Dual Sourcing or Process Improvement?

Process flexibility, whereby a production facility can produce multiple products, is a critical design consideration in multiproduct supply chains facing uncertain demand. The challenge is to determine a cost-effective flexibility configuration that is able to meet the demand with high likelihood. In this paper, we present a framework for analyzing the benefits from flexibility in multistage supply chains. We find two phenomena, stage-spanning bottlenecks and floating bottlenecks, neither of which are present in single-stage supply chains, which reduce the effectiveness of a flexibility configuration. We develop a flexibility measureg and show that increasing this measure results in greater protection from these supply-chain inefficiencies. We also identify flexibility guidelines that perform very well for multistage supply chains. These guidelines employ and adapt the single-stage chaining strategy of Jordan and Graves (1995) to multistage supply chains.

Brian Tomlin

Papers

On the Value of Mitigation and Contingency Strategies for Managing Supply Chain Disruption Risks

The power of flexibility for mitigating supply chain risks

On the Value of Mix Flexibility and Dual Sourcing in Unreliable Newsvendor Networks

Mitigating Supply Risk: Dual Sourcing or Process Improvement?

Process Flexibility in Supply Chains