Plant Location and Inventory Level Decisions in Global Supply Chains: Evidence from Korean Firms

Lee, S and Park, S J and Seshadri, S (2017) Plant Location and Inventory Level Decisions in Global Supply Chains: Evidence from Korean Firms. European Journal of Operational Research. (In Press)

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Abstract

We investigate how firms make plant location and inventory level decisions to serve global markets. In our analysis, we consider not only differences in wages, transportation costs, and subsidies across countries but also exchange rate changes and competition between firms. We show that the degree of risk exposure of firms and the benefit of relocating plants to the final consumption market play a critical role in firms’ plant location decisions, especially when the global economy is highly uncertain. We provide conditions under which a firm relocates its plant from one country to another, and empirically validate the results. We then investigate how a firm manages inventory when its plant is located in a foreign country. We model and show that firm’s inventory level depends on currency exchange rates and transportation costs when the firm imports products. We empirically confirm the predictions of the theory by using a unique firm-level dataset drawn from Korean firms.

Affiliation: Indian School of Business
ISB Creators:
ISB CreatorsORCiD
Seshadri, Shttp://orcid.org/0000-0002-7917-5537
Item Type: Article
Uncontrolled Keywords: Manufacturing; Plant location; Inventory level; Exchange rate; Global supply chain
Subjects: Business and Management
Operations Management > Supply Chain Management
Depositing User: Veeramani R
Date Deposited: 28 Mar 2017 17:53
Last Modified: 31 Mar 2017 01:58
URI: http://eprints.exchange.isb.edu/id/eprint/512
Publisher URL: http://dx.doi.org/10.1016/j.ejor.2017.03.044
Publisher OA policy: http://www.sherpa.ac.uk/romeo/issn/0377-2217/
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