PANOS KOUVELIS, PhD, is Emerson Distinguished Professor of Operations and Manufacturing Management in the Olin Business School of Washington University in St. Louis, where he also serves as Director of the Boeing Center for Technology, Information and Manufacturing.LINGXIU DONG, PhD, is Associate Professor of Operations and Manufacturing Management in the Olin Business School of Washington University in St. Louis.ONUR OYABATLI, PhD, is Assistant Professor of Operations Management in the Lee Kong Chian School of Business at Singapore Management University.RONG LI, PhD, is Assistant Professor of Operations Management in the Lee Kong Chian School of Business at Singapore Management University.

• ContentsForeword xiiiPreface xvAcknowledgments xxiiiContributors xxvPart ONEFoundations and Overview1 Integrated Risk Management: A Conceptual Framework with Research Overview and Applications in Practice 31.1 Introduction, 31.2 An Action-Based Framework for Supply Chain Risk Management, 41.3 Risk Mitigation Strategies, 81.4 Research Opportunities, 10Reference, 122 Risk Management and Operational Hedging: An Overview 132.1 Introduction, 132.2 Risk Management: Concept and Process, 142.3 Identification of Operational Hazards, 182.4 Risk Assessment and Valuation, 222.5 Tactical Risk Decisions and Crisis Management, 282.6 Strategic Risk Mitigation, 302.7 Four Operational Hedging Strategies, 332.8 Financial Hedging of Operational Risk, 362.9 Tailored Operational Hedging, 422.10 Guidelines for Operational Risk Management, 47References, 483 The Effect of Supply Chain Disruptions on Corporate Performance 513.1 Introduction, 513.2 Sample, Performance Metrics, and Methodology, 533.3 The Effect of Supply Chain Disruptions on Corporate Performance, 553.4 Drivers of Supply Chain Disruptions, 633.5 What Can Firms Do To Mitigate the Chances of Disruptions?, 643.6 Summary, 72A. Methodology Used To Estimate Stock Price Performance, 73B. Methodology Used To Estimate Changes in Share Price Volatility, 75C. Methodology Used To Estimate Changes in Profitability, 76References, 764 Operational Strategies for Managing Supply Chain Disruption Risk 794.1 Introduction, 794.2 Stockpile Inventory, 824.3 Diversify Supply, 864.4 Backup Supply, 894.5 Manage Demand, 924.6 Strengthen Supply Chain, 964.7 Conclusions, 98References, 1005 Beyond Risk: Ambiguity in Supply Chains 1035.1 Introduction to Risk and Ambiguity, 1035.2 Ambiguity in a Single Period Newsvendor Setting, 1095.3 Ambiguity in a Supply Chain Inventory Positioning Setting, 1135.4 Conclusions, 120References, 122Part TWOIntegrated Risk Management: Operations and Finance Interface6 Managing Storable Commodity Risks: Role of Inventories and Financial Hedges 1276.1 Introduction, 1276.2 Literature Review, 1326.3 Problem Description, 1336.4 Optimal Policy for Single Contract Financial Hedging, 1376.5 Optimal Policy for a Portfolio of Financial Hedges, 1426.6 Role of the Operational and Financial Hedges, 1436.7 Example of Model Application and Results, 1506.8 Managerial Insights and Conclusions, 153References, 1547 Integrated Production and Risk Hedging with Financial Instruments 1577.1 Introduction, 1587.2 Single Period Models, 1597.3 Multiperiod Models, 1777.4 Conclusion, 192References, 1938 Capacity Expansion As A Contingent Claim: Flexibility And Real Options In Operations 1978.1 Introduction, 1988.2 A Financial Option Pricing Model: Black Scholes (1973) and Merton (1973) Model, 2018.3 Real Options Valuation (ROV) in Operations, 2058.4 Conclusion, 214References, 2159 Financial Valuation of Supply Chain Contracts 2199.1 Introduction, 2209.2 Review of Financial Markets, Arbitrage, and Martingales, 223 9.3 A Model for Financial Valuation of Supply Chain Contracts, 2269.4 Dual Formulation, 2319.5 Experimental Study, 2349.6 Conclusion, 243References, 243Part THREESupply Chain Finance10 Supply Chain Finance 24910.1 Introduction, 25010.2 TheModel Setting, Common Notation and Assumptions, 25310.3 Bankrupt-Prone Supply Chains under Wholesale Price Contracts, 25510.4 Financing the Bankrupt-Prone Newsvendor with Trade Credit Contracts, 27210.5 Conclusions and Future Research, 285References, 28611 The Role of Financial Services in Procurement Contracts 28911.1 Introduction, 29011.2 Model Description, 29411.3 Wholesale Contract with a Budget Constraint (wT,QT), 29811.4 Equilibrium Under a Credit Contract (QI,wI, ²I), 29911.5 Equilibrium with External Financing (QE,wE), 30711.6 Computational Experiments, 31011.7 Concluding Remarks and Extensions, 315References, 32412 Production/Inventory Management and Capital Structure 32712.1 Operations and Finance, 32712.2 The Model, 32912.3 Structural Properties of an Optimal Policy, 33312.4 Characterization of the Optimal Policy, 33712.5 Long-Term Decisions on Capital Structure, 34612.6 Extensions and Variations of the Basic Model, 35412.7 Concluding Remarks, 35712.8 Bibliographical Notes, 358References, 36013 Bank Financing of Newsvendor Inventory: Coordinating Loan Schedules 36313.1 Introduction, 36413.2 The Stackelberg Game, 36613.3 A Numerical Study, 37013.4 Coordinating Loan Schedules, 37713.5 Concluding Remarks, 380References, 384Part FOUROperational Risk Management Strategies14 Decentralized Supply Risk Management 38914.1 Introduction, 38914.2 Literature Taxonomies, 39414.3 Misalignment of Incentives, 39814.4 Competing Suppliers, 39814.5 Competing Manufacturers, 40814.6 Asymmetric Information, 41314.7 Conclusions, 419References, 42115 Using Supplier Portfolios to Manage Demand Risk 42515.1 Introduction, 42615.2 Literature Review, 42815.3 A Static Model, 43015.4 A Dynamic Model with Progressive Demand Revelation, 43615.5 Conclusions, 442References, 44316 An Opportunity Cost View of Base-Stock Optimality for the Warehouse Problem 44716.1 Introduction, 44816.2 A Simple Motivating Example, 44916.3 Model, 45016.4 Base-Stock Optimality, 45216.5 Managerial Aspects, 45716.6 Conclusions, 460References, 460Part FIVEIndustrial Applications17 Procurement Risk Management in Beef Supply Chains 46517.1 Introduction, 46517.2 Literature Review, 47017.3 Model Description, 47317.4 Computational Experiments for the Beef Supply Chain, 47717.5 Discussion, 491References, 49318 Risk Management in Electric Utilities 49518.1 Introduction, 49518.2 Price Risk, 49718.3 Volume Risk, 50118.4 Other Risk Examples, 50718.5 Summary, 511References, 51119 Supply Chain Risk Management: A Perspective from Practice 51519.1 Defining Supply Chain Risk Management, 51619.2 Understanding Your Supply Chain, 51719.3 Developing SCRM Capabilities, 51819.4 Process Approach to Supply Chain Risk Management, 52319.5 Case Study: Cisco Responds to the Sichuan Earthquake, 52719.6 The Importance of an International Standard in SCRM, 53419.7 Conclusion, 53420 A Bayesian Framework for Supply Chain Risk Management Using Business Process Standards 53720.1 Introduction, 53820.2 Related Literature, 54120.3 A Framework for Supply Chain Risk Categorization, 54320.4 Risk Quantification through Bayesian Learning, 54520.5 Case Study: Risk Modeling for a Global Supply Chain, 55020.6 Summary, 561References, 562Index 565

PANOS KOUVELIS, PhD, is Emerson Distinguished Professor of Operations and Manufacturing Management in the Olin Business School of Washington University in St. Louis, where he also serves as Director of the Boeing Center for Technology, Information and Manufacturing.LINGXIU DONG, PhD, is Associate Professor of Operations and Manufacturing Management in the Olin Business School of Washington University in St. Louis.ONUR OYABATLI, PhD, is Assistant Professor of Operations Management in the Lee Kong Chian School of Business at Singapore Management University.RONG LI, PhD, is Assistant Professor of Operations Management in the Lee Kong Chian School of Business at Singapore Management University.

• ContentsForeword xiiiPreface xvAcknowledgments xxiiiContributors xxvPart ONEFoundations and Overview1 Integrated Risk Management: A Conceptual Framework with Research Overview and Applications in Practice 31.1 Introduction, 31.2 An Action-Based Framework for Supply Chain Risk Management, 41.3 Risk Mitigation Strategies, 81.4 Research Opportunities, 10Reference, 122 Risk Management and Operational Hedging: An Overview 132.1 Introduction, 132.2 Risk Management: Concept and Process, 142.3 Identification of Operational Hazards, 182.4 Risk Assessment and Valuation, 222.5 Tactical Risk Decisions and Crisis Management, 282.6 Strategic Risk Mitigation, 302.7 Four Operational Hedging Strategies, 332.8 Financial Hedging of Operational Risk, 362.9 Tailored Operational Hedging, 422.10 Guidelines for Operational Risk Management, 47References, 483 The Effect of Supply Chain Disruptions on Corporate Performance 513.1 Introduction, 513.2 Sample, Performance Metrics, and Methodology, 533.3 The Effect of Supply Chain Disruptions on Corporate Performance, 553.4 Drivers of Supply Chain Disruptions, 633.5 What Can Firms Do To Mitigate the Chances of Disruptions?, 643.6 Summary, 72A. Methodology Used To Estimate Stock Price Performance, 73B. Methodology Used To Estimate Changes in Share Price Volatility, 75C. Methodology Used To Estimate Changes in Profitability, 76References, 764 Operational Strategies for Managing Supply Chain Disruption Risk 794.1 Introduction, 794.2 Stockpile Inventory, 824.3 Diversify Supply, 864.4 Backup Supply, 894.5 Manage Demand, 924.6 Strengthen Supply Chain, 964.7 Conclusions, 98References, 1005 Beyond Risk: Ambiguity in Supply Chains 1035.1 Introduction to Risk and Ambiguity, 1035.2 Ambiguity in a Single Period Newsvendor Setting, 1095.3 Ambiguity in a Supply Chain Inventory Positioning Setting, 1135.4 Conclusions, 120References, 122Part TWOIntegrated Risk Management: Operations and Finance Interface6 Managing Storable Commodity Risks: Role of Inventories and Financial Hedges 1276.1 Introduction, 1276.2 Literature Review, 1326.3 Problem Description, 1336.4 Optimal Policy for Single Contract Financial Hedging, 1376.5 Optimal Policy for a Portfolio of Financial Hedges, 1426.6 Role of the Operational and Financial Hedges, 1436.7 Example of Model Application and Results, 1506.8 Managerial Insights and Conclusions, 153References, 1547 Integrated Production and Risk Hedging with Financial Instruments 1577.1 Introduction, 1587.2 Single Period Models, 1597.3 Multiperiod Models, 1777.4 Conclusion, 192References, 1938 Capacity Expansion As A Contingent Claim: Flexibility And Real Options In Operations 1978.1 Introduction, 1988.2 A Financial Option Pricing Model: Black Scholes (1973) and Merton (1973) Model, 2018.3 Real Options Valuation (ROV) in Operations, 2058.4 Conclusion, 214References, 2159 Financial Valuation of Supply Chain Contracts 2199.1 Introduction, 2209.2 Review of Financial Markets, Arbitrage, and Martingales, 223 9.3 A Model for Financial Valuation of Supply Chain Contracts, 2269.4 Dual Formulation, 2319.5 Experimental Study, 2349.6 Conclusion, 243References, 243Part THREESupply Chain Finance10 Supply Chain Finance 24910.1 Introduction, 25010.2 TheModel Setting, Common Notation and Assumptions, 25310.3 Bankrupt-Prone Supply Chains under Wholesale Price Contracts, 25510.4 Financing the Bankrupt-Prone Newsvendor with Trade Credit Contracts, 27210.5 Conclusions and Future Research, 285References, 28611 The Role of Financial Services in Procurement Contracts 28911.1 Introduction, 29011.2 Model Description, 29411.3 Wholesale Contract with a Budget Constraint (wT,QT), 29811.4 Equilibrium Under a Credit Contract (QI,wI, ²I), 29911.5 Equilibrium with External Financing (QE,wE), 30711.6 Computational Experiments, 31011.7 Concluding Remarks and Extensions, 315References, 32412 Production/Inventory Management and Capital Structure 32712.1 Operations and Finance, 32712.2 The Model, 32912.3 Structural Properties of an Optimal Policy, 33312.4 Characterization of the Optimal Policy, 33712.5 Long-Term Decisions on Capital Structure, 34612.6 Extensions and Variations of the Basic Model, 35412.7 Concluding Remarks, 35712.8 Bibliographical Notes, 358References, 36013 Bank Financing of Newsvendor Inventory: Coordinating Loan Schedules 36313.1 Introduction, 36413.2 The Stackelberg Game, 36613.3 A Numerical Study, 37013.4 Coordinating Loan Schedules, 37713.5 Concluding Remarks, 380References, 384Part FOUROperational Risk Management Strategies14 Decentralized Supply Risk Management 38914.1 Introduction, 38914.2 Literature Taxonomies, 39414.3 Misalignment of Incentives, 39814.4 Competing Suppliers, 39814.5 Competing Manufacturers, 40814.6 Asymmetric Information, 41314.7 Conclusions, 419References, 42115 Using Supplier Portfolios to Manage Demand Risk 42515.1 Introduction, 42615.2 Literature Review, 42815.3 A Static Model, 43015.4 A Dynamic Model with Progressive Demand Revelation, 43615.5 Conclusions, 442References, 44316 An Opportunity Cost View of Base-Stock Optimality for the Warehouse Problem 44716.1 Introduction, 44816.2 A Simple Motivating Example, 44916.3 Model, 45016.4 Base-Stock Optimality, 45216.5 Managerial Aspects, 45716.6 Conclusions, 460References, 460Part FIVEIndustrial Applications17 Procurement Risk Management in Beef Supply Chains 46517.1 Introduction, 46517.2 Literature Review, 47017.3 Model Description, 47317.4 Computational Experiments for the Beef Supply Chain, 47717.5 Discussion, 491References, 49318 Risk Management in Electric Utilities 49518.1 Introduction, 49518.2 Price Risk, 49718.3 Volume Risk, 50118.4 Other Risk Examples, 50718.5 Summary, 511References, 51119 Supply Chain Risk Management: A Perspective from Practice 51519.1 Defining Supply Chain Risk Management, 51619.2 Understanding Your Supply Chain, 51719.3 Developing SCRM Capabilities, 51819.4 Process Approach to Supply Chain Risk Management, 52319.5 Case Study: Cisco Responds to the Sichuan Earthquake, 52719.6 The Importance of an International Standard in SCRM, 53419.7 Conclusion, 53420 A Bayesian Framework for Supply Chain Risk Management Using Business Process Standards 53720.1 Introduction, 53820.2 Related Literature, 54120.3 A Framework for Supply Chain Risk Categorization, 54320.4 Risk Quantification through Bayesian Learning, 54520.5 Case Study: Risk Modeling for a Global Supply Chain, 55020.6 Summary, 561References, 562Index 565

PANOS KOUVELIS, PhD, is Emerson Distinguished Professor of Operations and Manufacturing Management in the Olin Business School of Washington University in St. Louis, where he also serves as Director of the Boeing Center for Technology, Information and Manufacturing.LINGXIU DONG, PhD, is Associate Professor of Operations and Manufacturing Management in the Olin Business School of Washington University in St. Louis.ONUR OYABATLI, PhD, is Assistant Professor of Operations Management in the Lee Kong Chian School of Business at Singapore Management University.RONG LI, PhD, is Assistant Professor of Operations Management in the Lee Kong Chian School of Business at Singapore Management University.

• ContentsForeword xiiiPreface xvAcknowledgments xxiiiContributors xxvPart ONEFoundations and Overview1 Integrated Risk Management: A Conceptual Framework with Research Overview and Applications in Practice 31.1 Introduction, 31.2 An Action-Based Framework for Supply Chain Risk Management, 41.3 Risk Mitigation Strategies, 81.4 Research Opportunities, 10Reference, 122 Risk Management and Operational Hedging: An Overview 132.1 Introduction, 132.2 Risk Management: Concept and Process, 142.3 Identification of Operational Hazards, 182.4 Risk Assessment and Valuation, 222.5 Tactical Risk Decisions and Crisis Management, 282.6 Strategic Risk Mitigation, 302.7 Four Operational Hedging Strategies, 332.8 Financial Hedging of Operational Risk, 362.9 Tailored Operational Hedging, 422.10 Guidelines for Operational Risk Management, 47References, 483 The Effect of Supply Chain Disruptions on Corporate Performance 513.1 Introduction, 513.2 Sample, Performance Metrics, and Methodology, 533.3 The Effect of Supply Chain Disruptions on Corporate Performance, 553.4 Drivers of Supply Chain Disruptions, 633.5 What Can Firms Do To Mitigate the Chances of Disruptions?, 643.6 Summary, 72A. Methodology Used To Estimate Stock Price Performance, 73B. Methodology Used To Estimate Changes in Share Price Volatility, 75C. Methodology Used To Estimate Changes in Profitability, 76References, 764 Operational Strategies for Managing Supply Chain Disruption Risk 794.1 Introduction, 794.2 Stockpile Inventory, 824.3 Diversify Supply, 864.4 Backup Supply, 894.5 Manage Demand, 924.6 Strengthen Supply Chain, 964.7 Conclusions, 98References, 1005 Beyond Risk: Ambiguity in Supply Chains 1035.1 Introduction to Risk and Ambiguity, 1035.2 Ambiguity in a Single Period Newsvendor Setting, 1095.3 Ambiguity in a Supply Chain Inventory Positioning Setting, 1135.4 Conclusions, 120References, 122Part TWOIntegrated Risk Management: Operations and Finance Interface6 Managing Storable Commodity Risks: Role of Inventories and Financial Hedges 1276.1 Introduction, 1276.2 Literature Review, 1326.3 Problem Description, 1336.4 Optimal Policy for Single Contract Financial Hedging, 1376.5 Optimal Policy for a Portfolio of Financial Hedges, 1426.6 Role of the Operational and Financial Hedges, 1436.7 Example of Model Application and Results, 1506.8 Managerial Insights and Conclusions, 153References, 1547 Integrated Production and Risk Hedging with Financial Instruments 1577.1 Introduction, 1587.2 Single Period Models, 1597.3 Multiperiod Models, 1777.4 Conclusion, 192References, 1938 Capacity Expansion As A Contingent Claim: Flexibility And Real Options In Operations 1978.1 Introduction, 1988.2 A Financial Option Pricing Model: Black Scholes (1973) and Merton (1973) Model, 2018.3 Real Options Valuation (ROV) in Operations, 2058.4 Conclusion, 214References, 2159 Financial Valuation of Supply Chain Contracts 2199.1 Introduction, 2209.2 Review of Financial Markets, Arbitrage, and Martingales, 223 9.3 A Model for Financial Valuation of Supply Chain Contracts, 2269.4 Dual Formulation, 2319.5 Experimental Study, 2349.6 Conclusion, 243References, 243Part THREESupply Chain Finance10 Supply Chain Finance 24910.1 Introduction, 25010.2 TheModel Setting, Common Notation and Assumptions, 25310.3 Bankrupt-Prone Supply Chains under Wholesale Price Contracts, 25510.4 Financing the Bankrupt-Prone Newsvendor with Trade Credit Contracts, 27210.5 Conclusions and Future Research, 285References, 28611 The Role of Financial Services in Procurement Contracts 28911.1 Introduction, 29011.2 Model Description, 29411.3 Wholesale Contract with a Budget Constraint (wT,QT), 29811.4 Equilibrium Under a Credit Contract (QI,wI, ²I), 29911.5 Equilibrium with External Financing (QE,wE), 30711.6 Computational Experiments, 31011.7 Concluding Remarks and Extensions, 315References, 32412 Production/Inventory Management and Capital Structure 32712.1 Operations and Finance, 32712.2 The Model, 32912.3 Structural Properties of an Optimal Policy, 33312.4 Characterization of the Optimal Policy, 33712.5 Long-Term Decisions on Capital Structure, 34612.6 Extensions and Variations of the Basic Model, 35412.7 Concluding Remarks, 35712.8 Bibliographical Notes, 358References, 36013 Bank Financing of Newsvendor Inventory: Coordinating Loan Schedules 36313.1 Introduction, 36413.2 The Stackelberg Game, 36613.3 A Numerical Study, 37013.4 Coordinating Loan Schedules, 37713.5 Concluding Remarks, 380References, 384Part FOUROperational Risk Management Strategies14 Decentralized Supply Risk Management 38914.1 Introduction, 38914.2 Literature Taxonomies, 39414.3 Misalignment of Incentives, 39814.4 Competing Suppliers, 39814.5 Competing Manufacturers, 40814.6 Asymmetric Information, 41314.7 Conclusions, 419References, 42115 Using Supplier Portfolios to Manage Demand Risk 42515.1 Introduction, 42615.2 Literature Review, 42815.3 A Static Model, 43015.4 A Dynamic Model with Progressive Demand Revelation, 43615.5 Conclusions, 442References, 44316 An Opportunity Cost View of Base-Stock Optimality for the Warehouse Problem 44716.1 Introduction, 44816.2 A Simple Motivating Example, 44916.3 Model, 45016.4 Base-Stock Optimality, 45216.5 Managerial Aspects, 45716.6 Conclusions, 460References, 460Part FIVEIndustrial Applications17 Procurement Risk Management in Beef Supply Chains 46517.1 Introduction, 46517.2 Literature Review, 47017.3 Model Description, 47317.4 Computational Experiments for the Beef Supply Chain, 47717.5 Discussion, 491References, 49318 Risk Management in Electric Utilities 49518.1 Introduction, 49518.2 Price Risk, 49718.3 Volume Risk, 50118.4 Other Risk Examples, 50718.5 Summary, 511References, 51119 Supply Chain Risk Management: A Perspective from Practice 51519.1 Defining Supply Chain Risk Management, 51619.2 Understanding Your Supply Chain, 51719.3 Developing SCRM Capabilities, 51819.4 Process Approach to Supply Chain Risk Management, 52319.5 Case Study: Cisco Responds to the Sichuan Earthquake, 52719.6 The Importance of an International Standard in SCRM, 53419.7 Conclusion, 53420 A Bayesian Framework for Supply Chain Risk Management Using Business Process Standards 53720.1 Introduction, 53820.2 Related Literature, 54120.3 A Framework for Supply Chain Risk Categorization, 54320.4 Risk Quantification through Bayesian Learning, 54520.5 Case Study: Risk Modeling for a Global Supply Chain, 55020.6 Summary, 561References, 562Index 565