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Risk Uncertainty and Supply Chain Decisions: A Real Options Perspective
Author(s) -
Hult G. Tomas M.,
Craighead Christopher W.,
Ketchen, Jr. David J.
Publication year - 2010
Publication title -
decision sciences
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.238
H-Index - 108
eISSN - 1540-5915
pISSN - 0011-7315
DOI - 10.1111/j.1540-5915.2010.00276.x
Subject(s) - supply chain , supply chain risk management , context (archaeology) , demand chain , supply chain management , business , service management , extant taxon , value (mathematics) , liberian dollar , investment decisions , perspective (graphical) , economics , risk management , microeconomics , industrial organization , risk analysis (engineering) , marketing , production (economics) , computer science , finance , paleontology , evolutionary biology , machine learning , artificial intelligence , biology
Supply chain risk uncertainty can create severe repercussions, thus it is not surprising that research interest in supply chain risk has been growing. While extant inquiry is informative, there is a lack of investigations that center on supply chain investment decisions when facing high levels of risk uncertainty. Given the potential dollar value involved in these decisions, an understanding of how these supply chain decisions are made is of significant theoretical and practical importance. Real options theory, with its focus on decision making under conditions of uncertainty, is an appealing theoretical lens for this endeavor. In essence, real options theory asserts that managerial decisions center on creating and then exercising or not exercising certain opportunities. To date, theorizing about and investigations of real options have used firms as their focus. Not yet examined are real options within supply chains that cross firm boundaries and drive much of the competitive activity in the modern economy. Accordingly, we extend real options theory to the supply chain context by examining how different types of options are approached relative to supply chain project investments. Specifically, we theorize how the options will be related to perceived value under conditions of high supply chain risk uncertainty. Overall, our investigation builds knowledge by extending real options theory to the supply chain context and by providing evidence suggesting some options operate differently in supply chains than they do in firms.