Supply Chain Finance: Integrating Operations and Finance in Global Supply Chains (EURO Advanced Tutorials on Operational Research)

This textbook presents a coherent and robust structure for integrated risk management in the context of operations and finance. It explains how the operations-finance interface jointly optimizes material and financial flows under intricate risk exposures. The book covers financial flexibility, operational hedging, enterprise risk management (ERM), supply chain risk management (SCRM), integrated risk management (IRM), supply chain finance (SCF), and financial management of supply chain strategies. Both qualitative and quantitative approaches – including conceptualization, theory building, analytical modeling, and empirical research – are used to assess the value creation by integrating operations and finance. “This book provides a comprehensive description of the interactions between finance and operations and of how managers can best make decisions in recognition of these effects.” John R. Birge, University of Chicago “Supply chain finance is an emerging area where innovations can unlock great values to complement the advances in information and physical flows of supply chain.” Hau L. Lee, Stanford University “This book provides an excellent overview of supply chain finance and its most recent advances.” Jan A. Van Mieghem, Northwestern University “This book is indispensable for advanced students as well as practitioners when looking for a pedagogical sound and scientific rigorous approach to Supply Chain Finance.” Ralf W. Seifert, IMD/EPFL “The book advances our knowledge on the interface between operations and finance and provides managerial guidelines for effective risk management in the supply chain.” Xiande Zhao, CEIBS Preface 8 Reference 9 Contents 10 About the Authors 13 1 Introduction to Operations–Finance Interface 14 1.1 A Closed-Loop View 14 1.2 Integrated Risk Management: A Framework 18 1.3 Identify Risks and Their Interdependence 19 1.4 Specify Integration Conditions: When to Integrate—Or not 21 1.5 Select Operational Hedging and Financial Flexibility 27 1.6 Optimize Integrated Operations–Finance: Complements or Substitutes? 28 References 30 2 Capital Structure and Financial Risk Management 33 2.1 Approach Choice: Centralization or Decentralization? 33 2.2 Link Relationship Analysis with Approach Choice 35 2.3 Categorization of Financial Flexibility 37 2.4 Link Between Corporate Investment and Financial Risk Management 43 References 49 3 Supply Chain Risk Management 51 3.1 Conceptual Framework of SCRM 51 3.2 Categorization of Operational Hedging 56 3.3 Decentralized Supply Risk Management 60 References 66 4 Integrated Risk Management in Multinational Corporations 68 4.1 Integrated Risk Management: Concepts and Frameworks 68 4.2 Integrated Risk Management: Objectives and Measures 72 4.3 Integrated Risk Management: Strategy Formulation in Multinational Corporations 75 4.4 Integrated Operational and Financial Hedging 83 References 86 5 Integrated Risk Management with Capacity Reshoring 88 5.1 Integrated Operational Flexibility and Financial Hedging 88 5.2 Global Production with Capacity Reshoring, Switching Options, and Financial Hedging 90 5.2.1 Strategy Definition and Mean-CVaR Decomposition 94 5.2.2 Optimal Financial Hedging Strategy 96 5.2.3 Optimal Operational Flexibility Strategy 100 5.3 Interplay Between Operations and Finance 101 5.3.1 Relationship Between Capacity Reshoring and Production Switching 101 5.3.2 Relationship Between Operational Flexibility and Financial Hedging 102 5.3.3 Efficient Frontier Analysis 103 5.4 Numerical Examples 106 5.4.1 Impact of Exchange Rate Variability 108 5.4.2 Impact of Demand Variability 109 5.5 Integrated Hedging with Capacity Reshoring 112 References 113 6 Supply Chain Finance 115 6.1 Conceptual Framework of Supply Chain Finance 115 6.2 Supply Chain Finance Instruments 119 6.3 Working Capital Management in Supply Chains 122 6.4 Emerging Research on Supply Chain Finance 123 References 128 7 Managing Supplier Financial Risk with Pre-shipment Finance Instruments 130 7.1 Trade Finance Instruments 130 7.2 A Supply Chain with APD and BPOF 132 7.2.1 Centralized and Decentralized Benchmarks 136 7.2.2 Base Case 137 7.3 Financing with APD or BPOF 138 7.3.1 Buyer-Backed Purchase Order Financing 138 7.3.2 Advance Payment Discount 141 7.4 Interactions Between APD and BPOF 142 7.4.1 Single Financing Equilibrium Between APD and BPOF 142 7.4.2 Dual Financing with Both APD and BPOF 143 7.5 Numerical Examples 144 7.5.1 Impact of Demand Variability 145 7.5.2 Impact of Retailer’s Internal Capital Level 147 7.6 Pre-shipment Finance in Supply Chain 149 7.6.1 Managerial Implications 149 References 150 8 Research Overview of Operations-Finance Interface 152 8.1 Operations-Finance Interface 152 8.2 Research Methodology 153 8.3 Identifying Popular and Prestigious Papers 156 8.3.1 Citation Analysis 157 8.3.2 PageRank Analysis 158 8.4 Evolution of Research on Operations–Finance Interface 159 8.4.1 Supply Chain Finance 161 8.4.2 Integrated Operational Hedging and Financial Flexibility 167 8.4.3 Impact of Operational Effectiveness on Financial Performance 172 8.4.4 Joint Financing and Capacity Inventory Decisions 175 8.4.5 Real Options and Hedging in Operations Management 175 8.4.6 Integrated Operational and Financial Planning in Supply Chains 180 8.4.7 Valuation and Risk Mitigation in Commodity Trading 183 8.4.8 Research Syntheses and Other OFI Topics 183 8.5 Conclusions and Future Research 186 References 187 Uncited References 191 Annotation This textbook presents a coherent and robust structure for integrated risk management in the context of operations and finance. It explains how the operations-finance interface jointly optimizes material and financial flows under intricate risk exposures. The book covers financial flexibility, operational hedging, enterprise risk management (ERM), supply chain risk management (SCRM), integrated risk management (IRM), supply chain finance (SCF), and financial management of supply chain strategies. Both qualitative and quantitative approaches - including conceptualization, theory building, analytical modeling, and empirical research - are used to assess the value creation by integrating operations and finance."This book provides a comprehensive description of the interactions between finance and operations and of how managers can best make decisions in recognition of these effects." John R. Birge, University of Chicago"Supply chain finance is an emerging area where innovations can unlock great values to complement the advances in information and physical flows of supply chain." Hau L. Lee, Stanford University"This book provides an excellent overview of supply chain finance and its most recent advances." Jan A. Van Mieghem, Northwestern University"This book is indispensable for advanced students as well as practitioners when looking for a pedagogical sound and scientific rigorous approach to Supply Chain Finance." Ralf W. Seifert, IMD/EPFL"The book advances our knowledge on the interface between operations and finance and provides managerial guidelines for effective risk management in the supply chain." Xiande Zhao, CEIBS Front Matter ....Pages i-xiii Introduction to Operations–Finance Interface (Lima Zhao, Arnd Huchzermeier)....Pages 1-19 Capital Structure and Financial Risk Management (Lima Zhao, Arnd Huchzermeier)....Pages 21-38 Supply Chain Risk Management (Lima Zhao, Arnd Huchzermeier)....Pages 39-55 Integrated Risk Management in Multinational Corporations (Lima Zhao, Arnd Huchzermeier)....Pages 57-76 Integrated Risk Management with Capacity Reshoring (Lima Zhao, Arnd Huchzermeier)....Pages 77-103 Supply Chain Finance (Lima Zhao, Arnd Huchzermeier)....Pages 105-119 Managing Supplier Financial Risk with Pre-shipment Finance Instruments (Lima Zhao, Arnd Huchzermeier)....Pages 121-142 Research Overview of Operations-Finance Interface (Lima Zhao, Arnd Huchzermeier)....Pages 143-183