Tag: Faculty



Forty of the world’s leading supply chain scholars were invited to the Olin Business School at Washington University in St. Louis, back before a virus’ early days gave rise to shortages of cleaners, toilet paper and such. This was May 2019, under the auspices of the 5thSupply Chain Finance and Risk Management Workshop in which The Boeing Center for Supply Chain Innovation served as host.

The assembled academics offered such relevant presentations, research and ideas — a full nine months before a pandemic derailed, if not stymied, global operations — that it produced a special edition in scholarship: how to pay for production and distribution today and manage global risks in a highly uncertain COVID-19 environment. Supply Chain Finance and Fin Tech Innovations was published Oct. 1 as the 14th volume of Foundations and Trends in Technology, Information and Operations Management.

The volume was co-edited by two Boeing Center/Olin faculty: Panos Kouvelis, the Emerson Distinguished Professor of Operations and Manufacturing Management and the center’s director, and Ling Dong, professor of operations and manufacturing management. Their third co-editor was former Olin colleague Danko Turcic of the University of California, Riverside.

Kouvelis

“Innovative ways in managing working capital within global supply chains is of utmost importance in a turbulent environment,” said Kouvelis, who also sits on the journal’s editorial board. He also was part of a team that published a separate paper on these issues in the journal Production and Operations Management. “Especially small suppliers in global supply chains are currently stretched thin in their liquidity and ability to collect on their accounts receivables. Their debt exposure has drastically increased, and they rely on innovative financing schemes by their large corporate customers, such as reverse factoring schemes, or on fin tech innovations, such as the Ant Group fast loan services.”

Hot-off-the-press ideas

Supply chain managers who want to stay in the forefront of such practices can benefit from the hot-off-the-press ideas in research shared in the workshop and appearing in the edited volume. “Our workshop benefits from the close interaction of the Boeing Center with its member companies, and we listen to the timely topics they want us to research. We bring state-of-the-art thinking back to them to advance their practices,” Kouvelis added.

The scholars came from the London Business School at the University of London, University of Chicago, Northwestern, Penn and Carnegie Mellon as well as top universities in Australia and China. They authored 10 different papers parsed into three supply chain themes: financing issues in supply chains, fin tech innovations for working capital and risk management, and advances in risk management of operational systems.

Dong

“Supply chain risk management is the other topic of timely importance in the current environment,” Dong said. “The last 20 years, and especially during the pandemic, made apparent to all that we are more frequently exposed to increased severity disruptive shocks. Building supply chain resilience is what all companies aspire in their initiatives right now.”

The question always remains: How to do it.

“There are some very interesting ideas and practical suggestions on better hedging operational and supply chain risks in the work summarized in the volume,” Kouvelis said.

Working capital needs

In another recent work, Kouvelis and Turcic addressed both of the challenges prominently mentioned above: supporting working capital needs and better hedging certain risks (exchange rate exposure, commodity price fluctuations, interest rates and so on). The two researchers teamed on an automotive industry study forthcoming in Production and Operations Management.

They looked into the effectiveness of two data-driven financial hedging policies, cost hedging and cash hedging, aimed at mitigating financial distress, with their data coming from car manufacturing environments. The paper is titled “Supporting Operations with Financial Hedging: Cash Hedging Versus Cost Hedging in an Automotive Industry,” and for this study, they used data from the Federal Reserve Bank of St. Louis, U.S. Bureau of Labor, U.S departments of Treasury and Energy, and International Monetary Fund data.

The widely used cost-hedging strategy calls for carmakers to hedge raw material and production input purchases. That means they need to trade in raw materials to avoid higher costs, such as amassing the four essential commodities: aluminum, steel, zinc and plastic. Kouvelis and Turcic argue that a better way is to focus on cash hedging under which the firm hedges its net cash flow. Although managers are concerned about fluctuations in commodity prices, their study points out that demand changes are the most significant factor to be hedged.

Their findings also meant that cost hedging is barely more effective than no hedging at all and less effective — plus more costly — than a cash-hedging strategy, which hedges cost and demand. Moreover, in the current pandemic-affected environment, with changing consumer behavior and spending approaches across many product categories, including cars, and with volatile commodity prices, manufacturers should use cash-hedging policies to enhance operating cash flows and protect against financial distress.

Photo: Empty grocery store shelves in Vancouver, British Columbia, in March 2020 reflect the global supply chain disruptions amid the COVID-19 pandemic. (Margarita Young/Shutterstock.com)




The global supply chain has experienced once-in-a-lifetime disruptions — at least four times in the past 12 years or so. The 2007-09 financial crisis was followed by Japan’s tsunami, earthquake and nuclear disaster of 2011, which was followed by the U.S.-China trade conflict that seemed to peak in 2018 and now the COVID-19 pandemic.

Resilience, once a hallmark that academics ascribed to the most successful supply chains, has become a “matter of survival,” writes an international team of researchers including an expert from Olin.

Why do some distribution businesses have it and others don’t? It’s all about the implementation and execution of resilience strategies, the team learned from supply-chain executives and shared in a paper forthcoming in Management and Business Review.

In a series of pandemic-era interviews with 14 senior executives from 12 companies representing a wide range of industries affected by the pandemic, the co-authors discovered that the businesses survived, if not thrived, due to “agile responses”—whether for the short term or long term, or both. These interviews allowed the researchers to derive an integrative framework similar to a how-to list, split into two basic categories: enablers and resilience strategies.

Enablers and resilience strategies

The resilience strategies are built upon policies that increase redundancy and operating flexibility: operation buffers (such as different inventories); footprint diversification (postponing or relocating production lines); supply options (flexible networks and financing); robust distribution (alternative warehousing, transport and routes); product standardization (sharing components or using off-the-shelf parts); and partner network (supplier relationships and sharing risks, costs and gains).

The enabler activities essentially are best practices and “prerequisites for implementing the strategy elements,” the researchers wrote: end-to-end visibility, end-to-end control, continuous IT infrastructure, and organizational readiness (previous or continuous risk management and planning).

Kouvelis

“While all executives seemed well-versed into the supply chain resilience theory and concepts, they all discussed the implementation barriers they encountered as they tried to move their company’s supply chain to a needed resilient state,” said co-author Panos Kouvelis, director of the Boeing Center for Supply Chain Innovation and the Emerson Distinguished Professor of Operations and Manufacturing Management at Olin. “The executives were quick to point out supply chain resiliency as the attribute to guide the companies’ adjustment in the new (ab)normal world we will face the next two years.”

Kouvelis and his co-authors— rom Stanford University, Georgetown University, Santa Clara University, Kobe University, Germany’s Otto Beisheim School of Management and the University of Pennsylvania—followed four themes in their interviews: How has your company responded to the crisis? What are the elements of your resilience strategy? How did you arrive at that strategy? What lessons are key moving forward?

Cisco, Colgate-Palmolive, Nike, etc.

They interviewed executives with firms anywhere from a 2,000-employee food business in Asia earning $2.5 billion annually to a 150,000-employee consumer products company in Europe earning $52 billion annually. Among them were Cisco, Colgate-Palmolive, HP Enterprise, Infineon, Nike, Unilever, Emerson and Bayer Crop Science.

The co-authors learned that these companies basically designed a resilient supply chain via a two-stage process: selecting the “right” fit of strategies—and nobody implements all of the aforementioned—and then defining how to implement them. This could mean that, in the definition process, company management decides their first choice proves to be unfeasible or costly and instead opts for a Plan B. A company may also design different strategies for different products under their umbrella.

The researchers also found that strategy implementation, in these times of outsourcing and global disruptions, was enhanced by a collaborative, cooperative relationship among logistics businesses, suppliers and customers.

Interestingly, the researchers learned that executives are more willing to invest in resilience strategies if they had trouble regaining their market position after a disruption. For instance, it was mentioned amid the interviews—as examples of best practices—how Japanese automakers invested in increased buffers to reduce disruption risks after the 2011 earthquake, and Cisco reviewed its supply chain network to assess suppliers’ financial health after the 2007-09 crisis. The expenses were justified as a long-term and cost-effective “insurance policy.”

In fact, cross-company collaboration was seen as a necessary cost to the point where some companies financed suppliers and buyers, or at least provided technical support, to ensure a stronger supply chain.

‘Prescriptive recommendations’

The researchers offered a list of “prescriptive recommendations” such as centralizing the risk-management function, strengthening supplier relationships and innovative financing. However, they noted that the more resilient companies react early in such a crisis, and chains’ designs differ as much as their products, markets and countries. In other words, what works for toilet paper in Texas won’t work for cars in the Cayman Islands.

Kouvelis said he heard clear echoes of “never let a good crisis get wasted” throughout the executive interviews, and he paraphrased one of them: “You might even consider it a blessing in disguise … .” That particular company used the pandemic disruption to speed up digitalization of its supply chain and invest further in risk management.

In a separate paper written by Kouvelis and Morris A. Cohen, the Penn researcher from the resilience strategies study, and accepted for publication in the Production and Operations Management Society (POMS) journal, the co-authors rewrote the long-held Triple-A framework of successful global supply chains: agile, adaptable and aligned. They re-evaluated and reconfigured it, adding three R’s in addition: robust, resilient and realigned.

The reasons behind the redo are the global crises and the localized shocks that regularly have arrived the past decade-plus: Industrial supply chains have been found to experience a serious, one-month disruption every four years or so.

“The Triple-A framework of supply chain excellence served us well in the 1990s and early 2000s,” Kouvelis said of the rationale for, and the logic of, a new framework. “However, the last 15 years have seen frequent supply chain disruptions—and of alarming severity. Time to add the R’s in the supply chain excellence attributes model.

“Short-term agility has to be complemented with robustness for real-time responses across a wide range of scenarios. Adaptability to long-term technology and macroeconomic trends needs resilience to future shocks and the new (ab)normal world. Moreover, alignment of incentives of existing supply chain partners requires realignment to deal with evolving business models, changing consumer needs and preferences and a newly defined value system. The era of turbulence of the next 20 years needs a Triple-A-&-R portfolio of excellence capabilities in supply chains.”

POMS honored Kouvelis in its November 2020 issue, printing a career commendation called a Laudatio (subscription required). POMS also published as the lead article in that issue a study by Kouvelis and a Chinese University of Hong Kong professor on distribution channel compensation, initially posted online in June.




President-elect Joe Biden has signaled that fighting the COVID-19 pandemic will be an immediate priority for his administration. He recently announced a coronavirus advisory board of infectious disease researchers and former public health advisers along with an updated strategy that will include increases in testing and contact tracing, as well as transparent communication.

But Inauguration Day is still a month away. The number of confirmed COVID-19 cases is likely to increase to 20 million by the end of January, nearly doubling the levels around the time of his election, an Olin COVID-19 forecasting model predicts.

The model, which accurately forecasted the rate of COVID-19 growth over the summer of 2020, was developed by Olin’s  Meng LiuRaphael Thomadsen and Song Yao. Their paper—presenting the model and its forecasts—was published November 23 by Scientific Reports.

“One of the key reasons for the increased accuracy of this model over other COVID-19 forecasts is that this model accounts for the fact that people live in interconnected social networks rather than interacting mostly with random groups of strangers,” said Thomadsen, professor of marketing. “This allows the model to forecast that growth will not continue at exponential rates for long periods of time, as classic COVID-19 forecasts predict.”

The evolution of COVID-19 depends on how much we, as a country, continue to social distance or return back to normal levels of interaction. This chart shows forecasted cases in the U.S. through the end of January 2021 based on our current social distancing levels, as well as less and more social distancing.

An interactive online version of the model also allows users to observe the impact different levels of social distancing will have on the spread of COVID-19. The current social distancing reflects an approximate 60% return to normalcy, as compared with the level of social distancing before the pandemic. If we continue, as a nation, at the current level of social distancing, the model forecasts that we are likely to reach 20 million cases before the end of January 2021.

“Even small increases in social distancing can have a large effect on the number of cases we observe in the next two and a half months,” Thomadsen said. “Going back to a 50% return to normalcy, which was the average level of distancing in early August, would likely result in 5 million fewer cases by the end of January.

“We could effectively squash out the COVID growth within a few weeks if we went back to the levels of social distancing we experienced in April.”

Raphael Thomadsen

“We could effectively squash out the COVID growth within a few weeks if we went back to the levels of social distancing we experienced in April,” he added.

However, the researchers caution that this is likely a conservative estimate due to increased testing and the upcoming holidays.

“In our model, we assume that only 10% of cases are ever diagnosed, meaning that we will start to hit saturation,” said Song Yao, associate professor of marketing and study co-author. “However, more recently, testing has increased, and probably more like 25% of cases are diagnosed. In that case, total COVID cases would increase beyond 20 million in the next few months unless we, as a society, engage in more social distancing.”

“The upcoming holiday seasons will present a great deal of uncertainty to the outlook of the pandemic as people travel more at the end of the year. This will likely make our forecast an optimistic one,” said Meng Liu, assistant professor of marketing and study co-author.




A member of a corporation’s board of directors may exert a similar amount of influence on a business’ outcome as its CEO.

Particularly if that board member has endured a bankruptcy at another company where they serve as a director.

So finds a new study from Olin researchers, plus a former Olin PhD at Indiana University, forthcoming in the Journal of Financial Economics.

In fact, Olin’s Radhakrishnan Gopalan and Todd Gormley, along with Indiana’s Ankit Kalda, learned that firms take more risks after a member of their board of directors undergoes a bankruptcy at another firm where they serve as a director. The co-authors discovered such risk-taking usually occurs when this particular director (a) experienced a quick, less-costly bankruptcy elsewhere and (b) serves in a position of greater influence.

Their findings suggest that these firsthand bankruptcies provide board directors with a learning experience that causes them to lower their estimate of distress cost—expenses faced by firms in financial distress beyond the cost of doing business.

Gopalan

“This is one of the first studies to highlight how a director’s later-life experience influences their attitudes about risk and risk-taking,” said Gopalan, professor of finance. “Our study highlights the importance of learning and understanding the director’s life experience when making hiring decisions.“

There are two extreme parts of the bankruptcy spectrum, the co-authors noted. A director could’ve seen a contentious process that ends in liquidation, emboldening a perspective that bankruptcy is costly. Or a director could’ve experienced a tidy, pre-packaged bankruptcy that ends in a successful return to operation, causing the director to infer that bankruptcy, and hence risk-taking in general, need not be as costly as they originally assumed.

To research a set of such corporate directors from the period 1994-2013, the co-authors used the Lopucki Bankruptcy Research Database, a US Securities and Exchange Commission database (Electronic Data Gathering, Analysis and Retrieval, or EDGAR), BoardEx, data from proxy statements and more. That enabled them to identify 718 firms sharing a director with 261 firms that filed for bankruptcy at some point in the study’s roughly 20-year window.

Next, they stacked these firms and a control group (lacking any bankruptcy-veteran directors) against three sets of risk measures: corporate financial policies such as net leverage, cash holdings and equity issuance; corporate risk such as cashflow volatility, stock volatility and distress; and measures of acquisition activity. Why acquisition activity? Because prior evidence showed firms engage in diversifying their acquisitions to reduce their risk.

On average, the data showed, firms increased their risk taking and moved closer to bankruptcy, following a director’s previous experience with it.

On average, the data showed, firms increased their risk taking and moved closer to bankruptcy, following a director’s previous experience with it.

The firms with bankruptcy veterans on their boards saw their net leverage increase after their own bankruptcies, as well as seeing increases in cash flow volatility (by 0.9 percentage points), stock volatility (by 0.2 percentage points) and distress events. Similarly, those businesses’ diversifying acquisitions (by 2.9 percentage points) decrease and their likelihood of default increases.

These weren’t new or even newly bankruptcy-scarred directors, either. On average, they were sitting on these boards for more than six years prior to a bankruptcy filing.

To try to ensure that there weren’t any crossover issues in their findings, the co-authors analyzed for any possibility of common shocks and industry-wide issues in a shared business silo. They conducted what they called placebo tests, identifying multiple firms that previously shared a director with a corporation that filed for bankruptcy but didn’t share one at the time of that corporation’s bankruptcy.  They found no evidence of a shift in behavior in this placebo test. Nor did they observe a change in risk-taking when a director experiencing bankruptcy elsewhere exits that board soon after.

The co-authors also analyzed how risk-taking differed based on how costly the previous bankruptcy was.

It didn’t surprise them to find more risk-tasking by businesses with directors who experienced lower-cost, pain-free bankruptcies, and less risk-taking by firms with directors who endured protracted, costly ones.

What did surprise them: The aftershocks to that particular director’s career. The data showed that a person’s number of board memberships declined in the years following a bankruptcy, but this only occurred among directors who led their firms through protracted, costly bankruptcies.

Gormley

“Directors serve two main roles,” said Gormley, assistant professor of finance. “One, monitor the manager to make sure they act in shareholders’ best interests. Two, advise the manager on important decisions.

“Typically, independent directors — those with no prior connection to the firm or CEO — are thought to serve more of a monitoring role. Non-independent directors are thought to provide more of an advisory role. We find our results are concentrated among non-independent directors, suggesting the change toward risk-taking is driven by a change in the advice directors provide rather than a change in their monitoring.”

Moreover, in parsing the influence of board members who aren’t on the management team but have some connection or advisory role, the co-authors found that many of them had backgrounds in private equity (13.1%), manufacturing (10.3%), venture capital (8.6%) and consulting (7.5%). Such portfolios might explain why CEOs and other directors might more highly regard, and abide by, their views when making decisions over finance and risk.

“It’s well known that CEOs and their experience matter,” Gormley said. “But here, we are seeing that individual directors also matter. This is different than what most investors typically focus on, which are the board-level characteristics like what fraction of directors are independent.

“These findings suggest that it’s important for firms to hire individual directors with the experience set they consider most important for improving the quality of the advice they will provide the manager.”


When the COVID-19 pandemic and resulting economic downturn caused internship cancellations, WashU Olin and the Center for Experiential Learning stepped up to provide summer learning opportunities for students while supporting St. Louis-based businesses. We’ll be sharing their stories on the Olin Blog. Today, we’ll hear from Phyllis Ellison, executive director of InvestMidwest Venture Capital Forum and  vice president of partnerships and program development, CORTEX Innovation Community

Given the pandemic, what compelled your company to get involved with this program?

 The CEL summer project program was offered at the perfect time. A practicum student that was scheduled to work in Fall 2020 with InvestMidwest cancelled. We had no idea if we were going to be able to find a student for summer, and how we would manage an internship. Cortex submitted two project ideas to the CEL, and one was selected. I’ve worked with three CEL teams in the past, and knew that having a team of WashU Olin Business School students working on our project would help us get the information and results we need to move any of our projects forward.

What is your project about?

InvestMidwest is an annual investor forum that connects venture capital investors to Midwest startups in the life science, tech, ag/food and energy sectors. The 20-year-old event recently transitioned to Cortex’s management. This project was to research the outcomes of the 700+ companies that have participated in InvestMidwest. That data will support marketing efforts and guide selection criteria in the future. 

What was it like working with WashU Olin students?

Olin students are great workers. Some are working on their organization and leadership skills; others are gaining an understanding of project management and the progression of a research project. They are all fine tuning their professional skills, and it was great to support that process.

What advice would you give students on the cusp of graduating at this time in history?

I really feel for students graduating during an economic downturn. I experienced it myself, as well as watching students go through the 2008-2010 recession. I would encourage them to be diligent in trying to find a job in their field. Don’t give up! Volunteer at a not-for-profit to gain experience and meet people. Attend events, when we’re able to do that again. Talk to people you know, asking about opportunities. Even if it’s below your preferred salary level, you’ll have the opportunity to grow your field. It will be difficult to return to your field of interest a couple years down the road if you don’t have any experience when a fresh class of graduates is entering the work force too. 

What are you going to take with you from this experience?

This experience has been such a great reminder. I’ve worked with CEL teams in the past, and this reminded me how valuable these teams are. The research and analysis the students did was incredible—and it’s a good reminder to remember WashU Olin as a resource we can tap into.




Something is out to kill you. How do you react? Do you respond based on whether you’re a Republican or a Democrat?

“One would hope that when your life is on the line that partisanship drops out, right?” said Olin’s John Barrios, assistant professor of accounting.

Barrios

Wrong. It doesn’t. Not according to Barrios’ National Bureau of Economic Research working paper titled “Risk Perception Through the Lens of Politics in the Time of the COVID-19 Pandemic.”

Barrios coauthored the paper with Yael Hochberg of Rice University.

As COVID-19 began its epic march across the United States, politicians and commentators were divided on the severity of the public health threat. Barrios and Hochberg examined people’s behavior whose perceptions of risk were informed by the news media and those of the partisan leaders. They found that the partisan divide was reflected in the social-distancing behavior of individuals.

Their research shows that a higher share of Trump voters in a county is associated with lower perceptions of risk during the pandemic. As the share of Trump voters rises, individuals search less for information on the virus. They also engage in less social distancing behavior, as measured by smartphone location patterns.

Why patterns reverse

The patterns persist in the face of state-level mandates to close schools and businesses or to stay at home. They reverse only when conservative politicians are exposed to the virus or when the White House releases federal social distancing guidelines.

“Perception really matters in terms of how you behave,” Barrios said. “And it’s even more important in these epidemics because of the externalities that our behavior has.”

Some might be very cautious because they perceive COVID-19 as dangerous. “Yet if my neighbor doesn’t really care, it doesn’t matter how much I stay in my apartment if he knocks on the door after he’s been walking around the whole of Chicago,” Barrios said.

Barrios set out to understand how individuals perceive the guidance from both the Centers for Disease Control and Prevention and those in political power. “Our idea was: To what extent would we observe differences in the behavior of these individuals? Given that the political party in power at this point is a Republican president, while the House (of Representatives) is Democratic.”

Even after controlling for economic characteristics in an area and the actual risk of contracting COVID-19, “we still observe a difference between high-Trump areas versus low-Trump areas,” Barrios said.

Over the course of the pandemic, governments have issued various directives regarding closing nonessential businesses and schools and sheltering in place. On March 16, federal guidelines for social distancing for a 15-day period were announced. Compliance with the directives varied substantially across counties with high and low shares of Trump voters. “In high Trump voter share counties, there is a significantly lower reduction in both average daily distance traveled and in visits to nonessential businesses,” Barrios said.

Those patterns shifted dramatically once the pandemic began affecting Republican politicians. Barrios’ paper notes the emergence of COVID-19 infections among participants at the annual Conservative Political Action Conference early this year. On March 9, Texas Sen. Ted Cruz and the chairman of CPAC self-quarantined after exposure to someone with COVID. After that announcement, people in counties with high Trump voter shares shifted their behavior. They reduced daily distance traveled and visits to nonessential businesses.

“They’re kind of catching up,” Barrios said. “Democrat areas in the same time period are still becoming more conservative, they’re social distancing more. It’s just that Republican areas are now doing it at a higher rate because they’re catching up because they’re taking it seriously.”

Same risk, different perspectives

Barrios said  “it’s worrying” that partisanship affects compliance with public health policy. “We’re not saying that the Democrats were right or Republicans were right. We’re simply saying that it’s very noteworthy that despite being exposed to the same risk, we still see different perspectives,” he said.

“Our main point is: If you want to think about policy and compliance in this voluntary, free society that we live in, the sources of this information matter and affect how we perceive that information,” Barrios said.

“And the fact that we have either news sources or political leaders that have diametrically opposed views on subjects, for whatever reason, seems to affect the behavior of individuals in ways that have real consequences—in this case, human lives.”