Financial ripple effect in complex adaptive supply networks: an agent-based model

Yaniv Proselkov, Jie Zhang, Liming Xu, Erik Hofmann, Thomas Y. Choi, Dale Rogers, Alexandra Brintrup

Research output: Contribution to journalArticlepeer-review

5 Scopus citations

Abstract

Tightening lending standards are motivating companies to adopt supply chain financing, with invoice backed lending to remedy financial stress. These financial objects depend on company-to-company relationships. The accumulation of these dyadic relationships creates complex supply network topologies. Companies within these networks are selfish and have varying degrees of bargaining power. To remain operational, they maximise their liquidity by negotiating longer repayment terms and cheaper financing, thus distributing risk onto weaker companies and propagating financial stress. To study this phenomenon, we created an agent-based supply network simulation model capturing these behaviours. We investigate structural conditions that make supply networks vulnerable to financial stress propagation and the resultant financial ripple effects using survivability analysis. We found firms with higher bargaining power are disproportionately more exposed to network risk. In diamond-shaped networks, firms occupying lower tiers are critical in financial stress propagation, becoming deep-tier nexus suppliers. Our results are relevant to industries with heterogeneous network composition. Practitioners must mitigate the effects of vulnerable network structures with careful supply chain financing design.

Original languageEnglish (US)
Pages (from-to)823-845
Number of pages23
JournalInternational Journal of Production Research
Volume62
Issue number3
DOIs
StatePublished - 2024

Keywords

  • Complex networks
  • bargaining power
  • complex adaptive systems
  • financial ripple effect
  • network simulation
  • supply chain financing

ASJC Scopus subject areas

  • Strategy and Management
  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering

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