Supply portfolio risk

Haksöz, Çağrı and Kadam, Ashay (2009) Supply portfolio risk. Journal of Operational Risk, 4 (1). pp. 59-77. ISSN 1744-6740

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In a single period framework, we develop a supply portfolio risk assessment tool for raw material procurement in the presence of supply risk (owing to contract breaches), demand risk and the spot price risk. Contract breaches are operational risk events that are classified under the “Clients, Products and Business Practices” category of the Basel II framework. We allow for the negative financial impact of intentional long-term fixed price contract breaches to be mitigated by using the spot market. The manufacturer uses the spot market to procure their need in the presence of a contract breach as well as to handle the shortfall/excess in customer demand. We use the CreditRisk+ framework, well known in finance literature, to extend the single supplier model to a portfolio of suppliers. This extension enables us to obtain, in the context of supply risk, the entire loss distribution at the portfolio level. In particular, akin to the value-at-risk statistic in finance, one can easily obtain a simple yet effective quantile measure of supply risk, coined as supply-at-risk, for a portfolio of long-term fixed price supply contracts.
Item Type: Article
Uncontrolled Keywords: Supply Chain Contracts, Contract Breach, Supply Chain Risk, Procurement, Portfolio Risk Management, Spot Market, CreditRisk+
Subjects: H Social Sciences > HG Finance > HG4001-4285 Financial management. Business finance. Corporation finance
H Social Sciences > HD Industries. Land use. Labor > HD0061 Risk Management
T Technology > TS Manufactures > TS0155-194 Production management. Operations management
Divisions: Sabancı Business School
Sabancı Business School > Operations Management and Information Systems
Depositing User: Çağrı Haksöz
Date Deposited: 04 Aug 2009 11:20
Last Modified: 26 Apr 2022 08:29

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