A Global Supply Chain Network Equilibrium Model with Stochastic Currency Choice

1. A Global Supply Chain Network Equilibrium Model with Stochastic Currency Choice Reporter: Li Zhu Date: 2009-06-06

2. Background • Increasing globalization • new opportunities • new risks and uncertainties • The dynamic impact of stochastic exchange rate volatility on global supply chain network • no difference in selecting payment currencies • current financial crisis

3. Related work • The classical supply chain network equilibrium model • Nagurney, A., Dong, J., Zhang, D., “A supply chain network equilibrium model,” Transportation Research Part E, Vol. 38, No. 5, pp. 281-303, 2002 • In the context of electronic commerce, uncertain supply and demand risk

4. The main work • The relationship between supply chain network and transportation network • Stochastic payment currency choice can be transformed to the traveler’s path selection problem

5. Model Formulation (manufacturer) • Maximizing a manufacturer ’s profit:

6. Model Formulation (manufacturer) • Manufacturers’ equilibrium transaction with stochastic currency choice :

7. Model Formulation (manufacturer)

8. Model Formulation (distributor) • Maximizing a distributor ’s profit:

9. Model Formulation (distributor) • Distributors equilibrium transaction with stochastic currency choice :

10. Model Formulation (distributor)

11. Model Formulation (retailer) • Maximizing a retailer ’s profit:

12. Model Formulation (retailer)

13. The equilibrium conditions

14. A prediction-correction algorithm • The algorithm generates two predictors which satisfy two acceptance criteria. • That projection-based algorithm merely requires dynamic regulation of step length, avoiding excessive iterations. • It is a light-weight approach, which can be easily applied in practice. • Comparing to the common Euler method our method is proved having a better global convergence.

15. Numerical simulation results

16. With an increase of  , are of the same trend in which the vibration rate of curve increases dramatically. Sensitivity analysis  a smaller means a bigger subjective observation error of the currency dealing cost

17. Conclusions • Summary • a new three-tier dynamic global supply chain equilibrium network with stochastic currency choice • different payment currency selection preferences as stochastic variables (diverse currency exchange rate risks and fluctuations) • Future work • time dependent costs and demand functions • the characteristics of products in transactions • the robustness in face of sudden demands.

18. Thank you!