Out of Sight, out of Mind? Modeling the Impacts of Financial Squeeze on Extended Supply Chain Networks

Abstract

Firms increasingly put financial pressure on their suppliers, also called squeezing. Suppliers react and adapt to financial squeeze as autonomous agents, causing complex ripple effects across the extended supply chain network. To capture intertwined and highly interactive effects among suppliers, we use agent‐based models. We explore the impact of financial squeeze on supply chain network structure and operational outcomes. Results suggest that financial squeeze affects the stability of the supply chain network and the effect varies depending on the location of the suppliers. Firms located at the bottom of the supply chain network suffer most from financial squeeze, and the magnitude of the effect increases as one goes further upstream. In addition, as existing suppliers exit the network and new suppliers enter, three network archetypes (Empty Nest, TransitUp, and StableDown) emerge. We identify the condition and operational consequences associated with these three archetypes. Our findings are informative to managers at buyer firms about the impacts of squeezing strategy on their extended supply chain partners, who often times are out of their immediate purview.

Managing extended supply chains

“…Nath et al (2021) investigate the institutional effects of sustainable practices across the multiple tiers of supply chains. Li et al (2021) address the ripple effect of financial squeezing across the multiple tiers of supply chain. Wiedmer and Griffis (2021) study topological characteristics of extended supply networks.…”

What is a fatal flaw? A guide for authors & reviewers

“…In introducing the STF, Choi et al (2021) elaborate on the issues and challenges that firms should consider. Li et al (2021) investigate a phenomenon that happens often in automotive supply chains—financial squeezing. When companies force suppliers to reduce their prices, what is the ripple effect across the extended supply chain?…”

Expanding supply chain management and logistics research: A year in review

“…Archival data were utilized to construct complex network structures (Wiedmer & Griffis, 2021), offer time series analysis (Miller et al 2021a(Miller et al , 2021b, and examine outcomes using a difference-in-differences technique . Finally, Volume 42 offered empirically grounded modeling approaches (Ambra et al 2021;Li et al 2021;Sternberg & Denizel, 2021). We hope that future submissions continue to reflect an array of diverse methods that will generate more insight and depth of understanding to L&SCM phenomena.…”