Plant location and inventory level decisions in global supply chains: Evidence from Korean firms

Seungrae Lee, Seung Jae Park, Sridhar Seshadri

Research output: Contribution to journalArticle

6 Citations (Scopus)

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.

Original languageEnglish
Pages (from-to)163-179
Number of pages17
JournalEuropean Journal of Operational Research
Volume262
Issue number1
DOIs
Publication statusPublished - 2017 Oct 1

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Supply Chain
Supply chains
Wages
Costs
Exchange rate
Business
Evidence
Plant location
Global supply chain
Currency
Prediction

All Science Journal Classification (ASJC) codes

  • Computer Science(all)
  • Modelling and Simulation
  • Management Science and Operations Research
  • Information Systems and Management

Cite this

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Plant location and inventory level decisions in global supply chains : Evidence from Korean firms. / Lee, Seungrae; Park, Seung Jae; Seshadri, Sridhar.

In: European Journal of Operational Research, Vol. 262, No. 1, 01.10.2017, p. 163-179.

Research output: Contribution to journalArticle

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