Lima Zhao

Managing Supplier Financial Risk with Pre-shipment Finance Instruments

In this chapter, we present a stylized model for managing supplier financial distress risk by two pre-shipment finance instruments: advance payment discount (APD) and buyer-backed purchase order finance (BPOF). We analyze the mechanisms of APD and BPOF, respectively. Next, we characterize the equilibria between APD and BPOF in both single-financing and dual-financing schemes. Moreover, we show numerically the effects of demand variability and the retailer’s internal capital level on the financing equilibrium and supply chain efficiency. We conclude with a brief summary and directions for future research.

Integrated operational and financial hedging with capacity reshoring

We consider a multinational corporation that employs capacity reshoring, production switching, and financial hedging to manage supply–demand mismatches and currency risk. We optimize mean-conditional value-at-risk (CVaR) by decomposing operations and finance: operational flexibility maximizes expected profit subject to a CVaR constraint, whereas financial hedging minimizes CVaR subject to a minimum expected profit. We report three main findings. First,operational flexibility and financial hedging can be complements: operational flexibility enhances profitability and reduces downside risk, while financial hedging minimizes downside risk and can affect the feasible set of capacity portfolios (albeit indirectly) by relaxing a CVaR constraint. Second,operational flexibility and financial hedging are substitutes in risk reduction (though the latter has greater risk reduction effects in CVaR when used alone). Third,coordinating operations and finance is crucial for minimizing substitution effects. Efficient financial hedging depends on rigorous estimation of cash flow distribution as shaped by operational flexibility, and a capacity portfolios feasibility relies on financial hedging because of the CVaR constraint.

Integrated Risk Management in Multinational Corporations

This chapter synthesizes the conceptual framework and empirical investigation of IRM (integrated risk management). We start by comparing frameworks of IRM and ERM (enterprise risk management). Next, we discuss risk attitudes and objective formulations in quantitative optimization. Finally, we present various risk measures and classify risk management strategies according to their treatment of risk.

Introduction to Operations–Finance Interface

This chapter presents concepts of OFI (operations–finance interface) and a framework of integrated risk management. First, we introduce a “closed-loop” view of resources by a cycle of material, financial, and information flows. Second, we synthesize various definitions on operations–finance interface to ensure consistency. Third, we present a risk management framework for multidimensional integration of operations–finance interfaces. Fourth, ten aspects are examined to specify the conditions under which firms should integrate operations and finance. Fifth, we examine the decision criteria for relationship analysis of operations and finance (complements or substitutes).

Supply Chain Finance

This chapter offers a theoretical framework for SCF (supply chain finance) and summarizes its applications. We start by proposing a framework for categorizing supply chain finance instruments and then discuss their underlying mechanisms. Next we explore the concept and empirical investigation of working capital management. Finally, we show how emerging conceptual, analytical, and empirical research has established the value—and a foundation for development—of supply chain finance.

Capital Structure and Financial Risk Management

This chapter emphasizes the link, between capital structure and financial risk management, that is central to matching the supply with demand of monetary flows. We start by investigating how capital structure theories are applied for approach choice of operations and finance (centralization or decentralization). Next, we link approach choice and relationship analysis in the context of integrated risk management. We then categorize the types of financial flexibility and describe the various financial instruments. Finally, we study the interaction between corporate investment and financial risk management.

Research Overview of Operations-Finance Interface

In this chapter, we take a qualitative and quantitative approach to reviewing conceptual research on—as well as analytical models and empirical assessments of—the interactions between operations and finance. First, we take a quantitative approach to bibliometric analysis (Tang and Musa in Int J Prod Econ 133:25–34, 2011; Fahimnia et al. in Eur J Oper Res 247:1–15, 2015). In particular, we conduct citation and PageRank analyses to identify both frequently cited and high-impact papers. Moreover, we analyze a data set of 258 peer-reviewed journal articles (excluding conference papers) on the OFI (i.e., operations–finance interface) from 1958 to 2016. In this context, we summarize the conceptual, analytical, and empirical research of operations-finance interface. In addition, we identify eight research streams in the paper citation network and sketch the landscape of operations–finance interactions based on leading articles and recent advances in each stream. Thus we statistically characterize the maturity and potential of these streams of research before proposing directions and approaches for future explorations in this field.

Integrated Risk Management with Capacity Reshoring

In this chapter, we provide an analytical model of integrated risk management with capacity reshoring. First, we review the analytical models on integrated operations-finance risk management in global manufacturing. Second, we formulate a global supply chain model and propose an optimal integration of operational flexibility and financial hedging. Third, we study analytically and numerically the interactions between operations and finance. Furthermore, the main insights and suggested directions for future research are summarized.

Supply Chain Risk Management

In this chapter, we introduce concepts and techniques of operational hedging in SCRM (supply chain risk management) that are used to match the supply with demand of material flows. First, we present a conceptual framework of supply chain risk management, after which we propose a classification of operational hedging based on our description of each operational strategy. We then examine representative analytical models of SCRM and give numerical examples. Finally, we discuss the empirical research on SCRM and provide some illustrative mini-cases.