Impact of financial risk on supply chains: a manufacturer-supplier relational perspective

Abstract

This study aims to analyse the manufacturer-supplier relational perspective under the influence of exogenous financial risk. Following corporate finance theory, a multi-objective decision model for supplier selection and order allocation is developed to maximise the total profit of the manufacturer, and minimise the implicit equity stake and financial risk faced by selected suppliers. A two-echelon supply chain is explored under the influence of foreign exchange risk, default risk, market risk and price fluctuation risk, and solved using an NSGA-III algorithm. Three case scenarios are analysed to explore the influence of a set of financial risk on the manufacturer-supplier relationship and the behaviour of suppliers concerning risk profile, both in the short and long-term horizon. The results are analysed from both the manufacturer as well as supplier perspective, and the optimal conditions are discussed under the cascading risk circumstances. The study provides multiple insights into the impact of financial risk on supply chain relationship and will be valuable for dealing with similar uncertain economic environment. The research is likely to be of benefit beyond supply chain managers, like investors and financial risk managers in making informed decisions. The need to focus on systemic risk in supply chains is evident from the study.

KEYWORDS:

• Financial risk
• buyer-supplier relationships
• supply chain risk management
• systemic risk
• corporate finance theory
• risk propagation

Acknowledgements

The authors are grateful to four anonymous reviewers and Associate Editor for their constructive comments and suggestions to improve the contents of this paper.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Notes on contributors

Abhijeet Ghadge

Dr Abhijeet Ghadge is a Senior Lecturer in Logistics and Supply Chain Management at Cranfield School of Management, UK. He holds PhD in Operations and Supply Chain Management from Loughborough University, UK, and MTech in Industrial Engineering and Management from Indian Institute of Technology, Kharagpur, India. He has over 13 years of industrial, academic and consulting experience working with a wide range of UK, European and Asian organisations. Dr Ghadge has published widely in the leading operations, logistics and supply chain management journals. He follows practice-driven approach to problems across the broad domains of supply chain risk, sustainability and Industry 4.0.

Sarat Kumar Jena

Dr Sarat Kumar Jena is an Associate professor in the Operations Management area at Xavier Institute of Management, Bhubaneswar, India. Dr Jena holds a PhD degree in supply chain management from Industrial & Systems Engineering, IIT Kharagpur, India and MTech in industrial engineering and Management from Indian Institute of Technology, Kharagpur, India. His research interests lie on the mathematical model on closed-loop supply chain, tourism supply chain, supply chain finance, and sustainable supply chain management. He has published papers in leading academic journals in operations research and supply chain management. Dr. Jena has also been a peer reviewer for several international journals and chair for several conference sessions. He was selected for the ‘Future Talent Postdoc Carrier Days program’ at Techische University Darmstadt, Germany in 2018.

Sachin Kamble

Prof Sachin Kamble is Professor of Strategy (Operations and Supply Chain Management) at EDHEC Business School, France. He has over 20 years of academic experience and is associated with leading manufacturing organisations in India, as a consultant and trainer. His research interest is inclined towards understanding the impact of emerging technologies such as Blockchain, Industry 4.0 and Big Data Analytics on sustainable supply chain performance. His work has been published in high impact journals such as International Journal of Production Economics, International Journal of Production Research, Computers in Industry, and Production Planning and Control.

Dheeraj Misra

Prof Dheeraj Misra is a Senior Faculty member of Finance at Jaipuria Institute of Management, Lucknow, India. He received his PhD from Indian Institute of Technology, Kanpur, India in 1994. He has over 27 years of teaching and one year of industry experience. He has published several research papers in various reputed journals and conferences. Prof Misra has conducted various Management Development Programmes (MDP) for middle and senior level managers of Indian corporates and government bodies. He is also actively involved with Institute of Actuaries of India as a member of its advisory group.

Manoj Kumar Tiwari

Prof Manoj Kumar Tiwari is Director, National Institute of Industrial Engineering (NITIE), Mumbai, India. He is also a Professor in the Department of Industrial and Systems Engineering at the Indian Institute of Technology, Kharagpur, India. He received BEng in Mechanical Engineering from Visvesvaraya National Institute of Technology, Nagpur, India and MTech in Production Engineering from Motilal Nehru National Institute of Technology, Prayagraj, India. He received PhD in Production Engineering from University of Jadavpur, India. He is actively involved in research relevant to the applications of optimisation, modelling, decision support systems, and data mining in the domain of logistics, supply chain management and manufacturing systems. He has published over 300 research papers in various reputed international journals and received multiple recognitions for his research contribution to production and operations management area.