{"title":"Uncertainty of Supply Chains: Risk and Ambiguity","authors":"d'Artis Kancs","doi":"arxiv-2405.03451","DOIUrl":null,"url":null,"abstract":"Motivated by the recently experienced systemic shocks (the COVID-19 pandemic\nand the full-fledged Russia's war of aggression against Ukraine) - that have\ncreated new forms of uncertainties to our supplies - this paper explores the\nsupply chain robustness under risk aversion and ambiguity aversion. We aim to\nunderstand the potential consequences of deeply uncertain systemic events on\nthe supply chain resilience and how does the information precision affect\nindividual agents' choices and the chain-level preparedness to aggregate\nshocks. Augmenting a parsimonious supply chain model with uncertainty, we\nanalyse the relationship between the upstream sourcing decisions and the supply\nchain survival probability. Both risk-averse and ambiguity-averse\nindividually-optimising agents' upstream sourcing paths are efficient but can\nbecome vulnerable to aggregate shocks. In contrast, a chain-level coordination\nof downstream firm sourcing decisions can qualitatively improve the robustness\nof the entire supply chain compared to the individual decision-making baseline.\nSuch a robust decision making ensures that in the presence of an aggregate\nshock - independently of its realisation - part of upstream suppliers will\nsurvive and the final goods' supply will be ensured even under the most\ndemanding circumstances. Our results also indicate that an input source\ndiversification extracts a cost in foregone efficiency.","PeriodicalId":501487,"journal":{"name":"arXiv - QuantFin - Economics","volume":null,"pages":null},"PeriodicalIF":0.0000,"publicationDate":"2024-05-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"arXiv - QuantFin - Economics","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/arxiv-2405.03451","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"","JCRName":"","Score":null,"Total":0}
引用次数: 0
Abstract
Motivated by the recently experienced systemic shocks (the COVID-19 pandemic
and the full-fledged Russia's war of aggression against Ukraine) - that have
created new forms of uncertainties to our supplies - this paper explores the
supply chain robustness under risk aversion and ambiguity aversion. We aim to
understand the potential consequences of deeply uncertain systemic events on
the supply chain resilience and how does the information precision affect
individual agents' choices and the chain-level preparedness to aggregate
shocks. Augmenting a parsimonious supply chain model with uncertainty, we
analyse the relationship between the upstream sourcing decisions and the supply
chain survival probability. Both risk-averse and ambiguity-averse
individually-optimising agents' upstream sourcing paths are efficient but can
become vulnerable to aggregate shocks. In contrast, a chain-level coordination
of downstream firm sourcing decisions can qualitatively improve the robustness
of the entire supply chain compared to the individual decision-making baseline.
Such a robust decision making ensures that in the presence of an aggregate
shock - independently of its realisation - part of upstream suppliers will
survive and the final goods' supply will be ensured even under the most
demanding circumstances. Our results also indicate that an input source
diversification extracts a cost in foregone efficiency.