Understanding Supply Chain Disruptions - Empirical Analysis of Supply Chain Structures

Abstract

Firms have encountered an ever-increasing number of supply chain disruptions in the past decade, triggered by a wide range of natural and man-made causes. Supply chain risk management is thus an active research area, while the concerning topics mainly focused on the management at the immediate supplier level. In contrast, anecdotes reveal that shortages can oftentimes be traced back to the problems at sub-tier suppliers, i.e., tier-2 or more upstream suppliers. Further, the structure of a supply chain is not exogenously generated. For example, lack of incentives may discourage manufacturers from entering a market and create a highly concentrated industry that could be vulnerable to supply shocks and price manipulation. These two topics, the sub-tier supplier structure and impacts and the entry decisions of manufacturers are the two main themes of this thesis. More specifically, this thesis presents empirical results that improve our understanding of 1) risk propagation from sub-tier suppliers to the connected focal firms and 2) barriers to entry for manufacturers. The first part of the thesis considers the sub-tier suppliers and the network structure that connects the supply chain partners. It demonstrates the financial performance link between firms and their tier-2 suppliers respectively. It also establishes the intermediary effect of network concentration: when a firm’s tier-1 suppliers share tier-2 suppliers. The second part of the thesis focuses on the generic pharmaceutical industry plagued by the high concentration of firms in markets with expired patents. This chapter studies the key determinants of market entry decisions by generic firms and confirms the role of manufacturing process and regulatory environment. Policy simulation result shows the non-monotone relationship between the speed of the government review process and market concentration level.