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Abstract
Purpose - This empirical analysis aims to shed light on the financial implications of supply chain design and in particular on the differences between pull- and push-type designs. The focus is on risk exposure to difficult to foresee supply disruptions, like those resulting from natural and man-made disasters.
Design/methodology/approach - The event study framework is applied to the stock performance of four major personal computer (PC) producers after the 1999 earthquake in Taiwan and the computer memory price increases that ensued.
Findings - It is shown that investors associate pull-type supply chains for PCs with lower profitability after abrupt component price increases. A parallel analysis of push-type producer stock returns does not show similar results. Furthermore, in-depth analysis of Dell Computer reveals that after the catastrophe-induced disruption the onset of losses to this major pull-type PC producer was very fast.
Practical implications - Without condemning pull-type PC supply chains, earthquake-induced disruptions pose risks that require management attention.
Originality/value - This empirical study provides evidence linking supply chain strategy and company risk structure.
Keywords Supply chain management, Push material ordering systems, Pull material ordering systems, Risk management, Computers, Taiwan
Paper type Research paper
Introduction
The fundamental dichotomy in supply chain management systems, that between the make-to-order (MTO) and the make-to-forecast (MTF) approaches, has been acknowledged in theory and practice. The MTF system takes full benefit from economies of scale in production and input acquisition by producing optimal output size and then distributing to wholesalers and retailers. The MTO system is known for its adaptive efficiency. Inventories of products characterized by highly volatile demand and technological depreciation need to move fast. According to the MTO system, a value adding transformation takes place only after someone demands it, in a just-in-time (JIT) fashion, thereby inventory risk is minimized. The MTO system, however, is a generalization of JIT as it permits order backlogs and production does not need to start immediately after an order arrives.
Fisher (1997) has provided a parsimonious comparison of MTF (physically efficient) and MTO (market responsive) supply chains according to their fit to product characteristics. At question is the relative performance of supply chain systems under stress, during disruptions in production or delivery. The MTO system in particular requires significant efforts in orchestration,...