Managing Supply Chain Sustainability through Microfinance and Recycling

open_access
Open Access
Author:
Sim, Jaehun
Graduate Program:
Industrial Engineering
Degree:
Doctor of Philosophy
Document Type:
Dissertation
Date of Defense:
May 07, 2014
Committee Members:
Vittaldas V Prabhu, Committee Chair/Co-Chair
Paul Griffin, Committee Member
Tao Yao, Committee Member
Douglas J Thomas, Committee Member
Keywords:
Microfinance
Sustainable Supply Chain
Carbon Emission
and Energy
Abstract:
As environmental laws and regulations tighten and the expectations for social responsibility of manufacturers rise, the conventional supply chain has responded by incorporating economic, environmental, and social content. In response to the demand for an increased social aspect of a sustainable supply chain, this study proposes the concept of supply chain microfinance (SCMF) as a financial sustainability solution to the problem of high interest rates in microfinance. Based on a minimum interest rate obtained from a Black-Scholes debt (BSD) model, this study first develops scenario-based stochastic microcredit contract models to calculate a proper interest rate that minimizes both the risk of adverse selection and the risk of moral hazard. The suggested models also include financial statement analysis through financial ratios to reflect the unique characteristics of the microfinance business environment. Next, this study formulates the concept of SCMF as a Stackelberg game model in the framework of a newsvendor problem for three entities, a manufacturer, a supplier, and a bank, based on the concept of SCMF. In the model, the manufacturer as a leader decides on an optimal order quantity and an optimal interest rate of a microcredit loan to a supplier. In a fair price trade, the supplier as a follower decides on an optimal wholesale price. The bank as a sub-leader decides on an optimal interest rate for a bank loan to the manufacturer. To investigate the financial sustainability and outreach of MFIs in terms of interest rate and default rate, this study employs an interest rate premium methodology for the evaluation of microcredit interest rates, along with a default rate premium methodology for the evaluation of microcredit default rate. To employ the Black-Scholes (BS) model to calculate microfinance institutions’ (MFIs) default rates, this study preliminarily tests the validation of MFIs’ asset values and default rates of geometric Brownian motion (GBM) using the Ryan-Joiner test and the chi-square test on two-way tables. Finally, to address the environmental aspects of a sustainable supply chain, this study conducts a life cycle analysis of energy usage and air emissions of two types of carpet, wool carpet and nylon carpet. In the first step, the analysis estimates the total energy requirement and carbon dioxide emissions (CO2) in the carpets’ six life cycles -- raw material acquisition, raw material production, product manufacturing, product installation, product use, and product recycling -- along with transportation in a sustainable supply chain.