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

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. 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. Front Matter....Pages I-XV Introduction....Pages 1-16 Literature review - basic theories and key contributions....Pages 17-87 Getting to Global - Building a global supply chain network model....Pages 89-124 The cost and value of Real Options flexibility....Pages 125-154 A Real Options Action Plan....Pages 155-165 Areas for further research....Pages 167-174 Back Matter....Pages 175-267 Rob Smith quantifies the financial value of Real Options in the form of operational and managerial flexibility in the real-life world of the global automotive industry using an existing, operational supply chain specifically designed to support world car vehicle platform production.