Supply Chain and Finance

Supply Chain and Finance

Arun Chockalingam
Assistant Professor
SCIENTIFIC DIRECTOR

Supply Chain & Finance Lab was established in 2009 and serves as a meeting place to collaborate on the current dynamics and trends both in academia and industry regarding SC&F. Integrating the financial techniques into operations management, the SC&F lab aims to provide more efficient and effective methodologies concerning the financial and operational flows in supply chains. Inspired by problems observed in industry, SC&F explores alternative solutions which can benefit both buyers and suppliers in supply chains. The SC&F Lab accommodates regular meetings, which are enriched with presentations of recent developments as well as with brainstorming on possible applications of SC&F.

What is Supply Chain and Finance?

Supply Chain Finance

The domain of Supply Chain and Finance (SC&F) is a relatively new research domain that is also known as the interface of operations management and finance. Research in this domain focuses on modeling the interaction between the financial and operational arms of firms with an aim to better understanding these interactions so that joint optimal decisions on both operations and finance can be made by firms at both the strategic and operational level. Research in this domain encompasses not only the investigation of how joint operational and financial decisions can be made, but also the risks involved.

Why is SC&F important?

In a perfect world, the interaction of the operational and financial arms of a firm should have no impact on its value. Each arm of the firm can make decisions independent of one another. In a world with transaction costs, taxes, information asymmetry and other such imperfections, decisions made by one arm of the firm will naturally affect the other. Consider for example, a car manufacturer. If the operational arm of the firm decides to produce cars to meet all of its demand, the financial arm needs to obtain financing to facilitate this production. On the other hand, if the financial arm has difficulty raising the necessary finance, the operational arm needs to scale back its production plans. The recent credit crisis drastically reduced the credit available to firms, dried up their cash reserves, and increased the risks faced by firms. Making joint optimal decisions on both operations and financing is now imperative for firms to remain competitive, protect themselves from further economic downturns, and give them the opportunity to take advantage of economic upturns.

Key Topics

Recently, there is a growing body of research on the interface of operations and finance. Currently, the active research questions include but are not limited to:

  • Adopting the value maximization framework of finance in operations models. This involves discounting for the systematic risk of the cash flows in operations models.
  • Exploring the impact of financial constraints and different forms of financing in operations models. This involves modeling bank-firm interaction, fairly pricing loans for newsvendor models, trade credit, supply chain finance and reverse factoring.
  • Integrating financial hedging decisions (using futures, forwards, and options) with the operating plans of the firm.

The current focus drifts towards the latter. However, there is still a lot of important empirical work done on the former two. Especially master students are continuing to model important issues faced by different companies within this industry.

How is SC&F implemented?

This integrated approach to decision making can occur at several different levels.  First, it can be a reapplication of concepts from one discipline in the other: for instance, the use of option valuation techniques to analyze flexibility in management of real assets, or the use of inventory theory to optimally meet a demand for cash.  Second, it can entail the recognition of constraints: just as a project must be operationally feasible to justify financing, the operational analysis should account for reasonable constraints imposed by providers of capital.  Ultimately, in the most complete analyses, supply chain & finance can show that optimal operational decisions and financing decisions are often indeed joint optima, in the sense that the alignment of information within the disciplines and with (potential) stakeholders yields an outcome superior to what can be reached with the traditional narrower focus.

Arun Chockalingam
Assistant Professor
SCIENTIFIC DIRECTOR
Shaunak Dabadghao
Assistant Professor
SCIENTIFIC DIRECTOR
Boray Huang
Assistant Professor
SCIENTIFIC DIRECTOR

Overview of OPAC research output

Our lab is involved in a number of (in-company) graduation projects of Bachelor and Master students.

Overview of all OML master theses

Currently our lab is involved in the following (joint) research & development projects. These projects are usually conducted in collaboration with other universities and companies. Contact our us if you are interested in teaming up for a new project proposal.

  • In a globalising economy, industrial value chains become more complex.  While goods flows in the chain are increasingly integrated and optimised, information and financial flows have been fragmented.  With respect to post-shipment financing, Supply Chain Finance (SCF) applications such as reverse factoring have shown that a collaborative approach can create significant value for corporations and ...