Kim Ruhl

(University of Wisconsin - Madison)

will give a presentation on

Mitigating international supply-chain risk with inventories and fast transport

Abstract: We study, theoretically and empirically, how firms use inventories and alternative transport modes in the presence of demand and supply shocks. We build an sS model of an importer reselling an input subject to stochastic demand with fixed and variable input ordering costs that differ by the speed of shipment. We show that 1) U.S. supply chains outside of NAFTA can be managed like those in NAFTA using air shipments; 2) having the option to ship products by air is valuable and the value is proportional to the reduction in inventories; 3) large positive industry demand shocks are accommodated by a shift to air; 4) distant supply chains can better adjust to large industry demand shocks owing to the extra inventories on hand and the ability to shift to air shipment.