Essays on supply risk in global operations

The prevalence of globalization has created significant operational risks in firms’ supply networks. It is, therefore, essential for firms to adopt effective risk management strategies to mitigate supply risks. Of the many operational challenges that globalization poses, this research focuses on the operational risk associated with emerging economies. These operational risks include, for example, leadtime risk, capacity risk, quality risk, intellectual property risk, political risk, regulatory risk, exchange risk, and so on. In this dissertation, we consider three of these risks, namely, leadtime risk, capacity risk, and regulatory trade barrier risk. In the first chapter, we examine the supplier random leadtime issue. In deciding when and how much to order, firms must consider lead time risk and demand risk, i.e., the accuracy of their demand forecast. We characterize a firm’s optimal timing and quantity policy. We prove that a firm’s optimal procurement time is independent of the demand forecast but that the optimal procurement quantity is not. In the second chapter, we examine the supplier random capacity issue. We relax the assumption that supplier reliability is exogenous and consider a case where a firm may have the opportunity to improve a supplier’s reliability. We characterize a firm’s optimal procurement policy for both its diversification strategy and its process improvement strategy. We prove that a firm’s procurement strategy is significantly influenced by the opportunity for process improvement. In the third chapter, we examine a firm’s sourcing strategy under regulatory trade barriers. We contrast four procurement strategies in their effectiveness to mitigate supply risk due to trade barriers