Global Supply Chain Coordination Mechanism Based On Exchange Rate Uncertainty

With the speedy process of globalization, an increasing amount of enterprises utilize the global supply chain as the effective tool to search for bargains and oversea markets. In the global enviorment, both demand uncertainty and exchange rate uncertainty will affect the performance of global supply chain. Hence, decreasing the influences of these two uncertain factors becomes an important issue. In order to maximize expected profit, some transnational enterprises utilize the traditional coordination strategies to manage the global supply chain. However, as traditional coordination contracts mainly focus on demand uncertainty, the loss caused by exchange rate fluctuation is inevitable. Based on this, by considering the payment is settled in upstream firm’s currency, some scholars study the global supply chain coordination mechanism with buy-back contract and quantity-rebate contract. In fact, no matter market factor, settlement time or settlement currency, altering any of them will lead to different performance of the global supply chain. The coordination mechanism of global supply chain needs further research.This paper considers the two-echelon decentralized global supply chain, which is constituted of two node-enterprises reside in different countries. By introducing market factor, settlement currency and settlement time into the model, it constructs four distinct global supply chain models and concentrates on the impact of exchange rate fluctuation. Based on the effects of exchange rate fluctuation, it discusses coordination mechanisms with different global supply chain models. This paper utilizes global supply chain models with different dominant firm to describe the influences of different settlement currency. By considering two kinds of demand functions, it compares the impact of currency discrepancy. In order to studying the influence of different settlement times, this paper introduces two different terms of payments, one is settling the payment at the end of the sale season, the other one is settling the payment right after the procurement. Besides, since both demand and exchange rate are uncertain, this paper studies global supply chain models with specific parameters in order to comprehend the effects of exchange rate fluctuation. The main content of the paper includes: the impacts of settlement currency and market factor on the performance of global supply chain; how does settlement time influence the global supply chain; the equilibrium of these global supply chain models and corresponding coordination mechanisms.First, this paper builds a two-echelon global supply chain model in which demand is stochastic and upstream firm is dominated. With this global supply chain model, it examines the impact of exchange rate fluctuation on the node-enterprises’ strategic behaviors and the performance of global supply chain. Also, it analyses the influence of settlement time by introducing pre-paid ratio. Moreover, it discusses the coordination mechanism by taking exchange rate into consideration. The result shows that, exchange rate fluctuation will affect downstream firm directly, and the influence of exchange rate fluctuation will transmit to upstream firm by the adjustment of downstream firm’s strategic behaviors. Exchange rate fluctuation will influence the equilibrium of this global supply chain model. When the expected exchange rate is adverse to downstream firm, downstream firm will decrease the order quantity, and the performance of global supply chain will also be declined. When the expected exchange rates are distinct at different settlement times, settling the transfer payments at different time points will lead to different performance of the global supply chain. The buy-back contract can coordinate this global supply chain.Second, this paper develops a two-echelon global supply chain model in which demand is stochastic and downstream firm is dominated. With this global supply chain model, it studies the impact of exchange rate fluctuation on the node-enterprises’ strategic behaviors and the performance of global supply chain. Note that, the purchase quantity cannot be determined due to uncertain demand. So it analyses the influence of settlement time by numerical analysis instead of modeling. Hence, it discusses the coordination mechanism by taking exchange rate into consideration. The result shows that, exchange rate fluctuation will affect upstream firm directly, and the influence of exchange rate fluctuation will transmit to downstream firm by the adjustment of upstream firm’s strategic behaviors. Exchange rate fluctuation will influence the equilibrium of global supply chain model. When the expected exchange rate is adverse to upstream firm, upstream firm will decrease the production quantity, and the performance of global supply chain will be declined too. Settling the transfer payment right after the procurement will form a hedging mechanism. This mechanism will reduce the exchange rate risk which upstream firm bears. The sale-rebate contract can coordinate this global supply chain.Then, this paper constructs a two-echelon global supply chain model in which demand is price-sensitive deterministic-demand and upstream firm is dominated. With this global supply chain model, it studies the impact of exchange rate fluctuation on the node-enterprises’ strategic behaviors and the performance of global supply chain. Also, it analyses the influence of settlement time by introducing pre-paid ratio. Moreover, it discusses the coordination mechanism by taking exchange rate into consideration. The result shows that, exchange rate fluctuation will affect downstream firm directly, and the influence of exchange rate fluctuation will transmit to upstream firm by the adjustment of downstream firm’s strategic behaviors. When the expected exchange rate is unfavorable to downstream firm, downstream firm will increase the sale price; this strategic behavior will also decrease the performance of global supply chain. When the expected exchange rates are distinct at different settlement times, settling transfer payments at different time points will result in different performances of global supply chain. The revenue-sharing contract can coordinate this global supply chain.Finally, this paper builds a two-echelon global supply chain model in which demand is price-sensitive deterministic-demand and downstream firm is dominated. With this global supply chain model, it studies the impact of exchange rate fluctuation on the node-enterprises’ strategic behaviors and the performance of global supply chain. Also, it analyses the influence of settlement time by introducing pre-paid ratio. Moreover, it discusses the coordination mechanism by taking exchange rate into consideration. The result shows that, exchange rate fluctuation will affect upstream firm directly. When the expected exchange rate is adverse to upstream firm, upstream firm will increase the wholesale price in order to maximize its own profit. This behavior will result in a higher sale price, and the performance of global supply chain will be declined. When the expected exchange rates are distinct at different settlement times, settling the transfer payment at different time points will lead to different performance of global supply chain. With the revenue-sharing contract, this global supply chain can only achieve centralized profit. But the system profit cannot be allocated arbitrarily between upstream firm and downstream firm. With the revenue-sharing strategy and the franchise fee, this global supply chain can be coordinated.