Exchange Rate Risk Hedging And Wholesale Price Contract Based Supply Chain Operations Under Demand Uncertainty

Global supply chains are faced with plenty of uncertainty factors, and then suffer heavy losses from the uncertainty factors such as ever-changing final market demand and the frequent-fluctuant exchange rate. An effective risk management strategy can reduce the losses, and then make all links in a global supply chain more stable and effective. Therefore, the study of global supply chain’s risk management strategy is necessary and valuable in practice.In this dissertation, we mainly focus on a two-echelon global supply chain consisting of an upstream manufacturer and a downstream retailer, and study three strategies of risk management under the market demand exogenous uncertainty and the exchange rate risk: the exchange rate risk-hedging via foreign exchange futures, the wholesale price incentive, and the cooperation. The results show the effectiveness of those strategies in risk management, and extend the research of the supply chain risk management strategy. The main research issues and results are as follows:(1)In Chapter 2, we consider two risk structures of the demand uncertainty and the exchange rate risk: In the first risk structure, the upstream manufacturer faces with the exchange rate risk while the downstream retailer faces with the demand uncertainty; and in the second risk structure, both the exchange rate risk and the demand uncertainty are pooled at the downstream retailer. Then we investigate the relationship between the equilibrium decision variables in those two risk structures, and show the different influence of those two risk structures to the supply chain operations: The equilibrium order quantity in the first risk structure is higher than in the second risk structure. Furthermore, we analyze how the exogenous uncertainty due to the market demand and the exchange rate risk influence the supply chain’s equilibrium decision variables.(2)Chapter 3 investigates the effect of the manufacturer’s exchange rate risk-hedging on the supply chain operations in the first risk structure. The results show that the strategy of hedging raises the supply chain’s equilibrium order quantity and reduces the manufacturer’s profit variance. Furthermore, we analyze how the exogenous uncertainty/risk influences the supply chain’s operations and the node firms’ profitability. The results indicate that the manufacturer’s exchange rate risk-hedging hinders the transmission of the uncertainty/risk between the supply chain node firms, then stabilizes the supply chain’s profitability, raises its risk resistance ability, and achieves a tradeoff between returns and risks.(3)In Chapter 4, we investigates the effect of the retailer’s exchange rate risk-hedging on the supply chain operations in the second risk structure. The results show that the strategy of hedging raises the supply chain’s equilibrium order quantity. Furthermore, we analyze how the exogenous uncertainty/risk influences the supply chain’s operations and the node firms’ profitability. The results indicate that the retailer’s exchange rate risk-hedging hinders the transmission of the exchange rate risk between the supply chain node firms, then reduces the impact of exchange rate risk to the supply chain revenue, and achieves a tradeoff between returns and risks.(4)Chapter 5 investigates the effect of the wholesale price incentive on the supply chain operations in the second risk structure. The results show that although the order quantity does not change, the wholesale price incentive raises the hedging proportion of the retailer’s total purchase payment and the wholesale price. Moreover, this incentive strategy increases the manufacturer’s profit and reduces the whole supply chain’s profit variance. Furthermore, we analyze how the exogenous uncertainty/risk influences the supply chain’s operations and the node firms’ profitability under the wholesale price incentive, and find that the supply chain achieves a tradeoff between returns and risks via the wholesale price incentive.(5)Chapter 6 investigates the effect of the cooperation on the supply chain operations in the second risk structure. The results show that the strategy of cooperation raises the order quantity and the exchange rate risk-hedging proportion, and then raises the retailer’s risk exposure level via raising its expected profit when the relative bargaining power is moderate. Furthermore, we analyze how the exogenous uncertainty/ risk influences the supply chain’s operations and the node firms’ profitability under the cooperation, and find that the supply chain achieves a tradeoff between returns and risks via the cooperation.