Supplier default dependencies: Empirical evidence from the automotive industry

Stephan M. Wagner, Christoph Bode and Philipp Koziol

European Journal of Operational Research, 2009, vol. 199, issue 1, 150-161

Abstract: Common ways to mitigate the detrimental consequences of supplier bankruptcies are to install redundancy and to pursue a multiple-sourcing strategy. This is based on the assumption that the adverse event of one supplier going out of business is largely independent from the default of other suppliers. However, this implicit assumption does not hold in all cases. This study - based on empirical data from automotive suppliers - reveals that default dependencies among suppliers do often exist and can have significant consequences. We use copula functions, a method of representing joint distribution functions with particular marginals, to capture the default dependence between automotive suppliers and to simulate various default dependence scenarios. We also conduct a comparative static analysis illustrating the significant impact of default correlation in a supplier portfolio. Our findings should spur managers to analyze their supplier portfolios with respect to default dependencies, and to take this phenomenon into consideration when making sourcing decisions.

Keywords: Supply; chain; management; Supplier; default; Sourcing; strategy; Supplier; portfolio; Default; dependence; Copulas (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0377-2217(08)00998-3
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:199:y:2009:i:1:p:150-161

Access Statistics for this article

European Journal of Operational Research is currently edited by Roman Slowinski, Jesus Artalejo, Jean-Charles. Billaut, Robert Dyson and Lorenzo Peccati

More articles in European Journal of Operational Research from Elsevier
Bibliographic data for series maintained by Catherine Liu ().