Volodymyr (Vlad) Babich
Assistant Professor
Phone: 734-647-0872
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[Printable Curriculum Vitae] [Education] [Research Interests] [Papers] [Grants] [Presentations] [Professional Experience] [Laboratories] [Conferences] [Service] [Memberships] [Awards] [Teaching] [Students]
Ph.D., Operations Research, Department of Operations, Weatherhead School of Management, Case Western Reserve University, 2003
M.S., Management Science, Department of Operations, Weatherhead School of Management, Case Western Reserve University, 2000
M.S., Mathematics, Department of Mathematics, Case Western Reserve University, 1998
B.S., Applied Mathematics, Kiev Polytechnic Institute, Ukraine, 1994
Interface between Operations and Finance
Supply-Chain Management
Stochastic Modeling
Real Options
Risk Management
Financial Engineering
Published Papers and Papers Under Review in Refereed Journals
"Pre‑IPO Operational and Financial Decisions," with M. J. Sobel, Management Science, 50(7), July 2004, pp. 935 - 948
Abstract:
Many owners of growing privately-held firms make operational and financial decisions in an effort to maximize the expected present value of the proceeds from an Initial Public Offering (IPO). We ask: "What is the right time to make an IPO?" and "How should operational and financial decisions be coordinated to increase the likelihood of a successful IPO?" Financial and operational decisions in this problem are linked because adequate financial capital is crucial for operational decisions to be feasible and operational decisions affect the firm's access to financial resources. The IPO event is treated as a stopping time in an infinite-horizon discounted Markov decision process. Unlike traditional stopping time models, at every stage the model includes other decisions such as production, sales and loan size. The results include (1) characterization of an optimal capacity-expansion policy, (2) sufficient conditions for a monotone threshold rule to yield an optimal IPO decision, and (3) algorithmic implications of results in (1) and (2)
"Competition and Diversification Effects in Supply Chains with Supplier Default Risk?" with P. H. Ritchken and A. N. Burnetas, Manufacturing & Service Operations Management, 9 (2), Spring 2007, 123 - 146
Abstract:
We study the effects of disruption risk in a supply chain where one retailer deals with competing risky suppliers who may default during their production lead-times. The suppliers, who compete for business with the retailer by establishing wholesale prices, are leaders in a Stackelberg game with the retailer. The retailer, facing uncertain future demand, chooses order quantities while weighing the benefits of procuring from the cheapest supplier against the advantages of order diversification. For the model with two suppliers we show that low supplier default correlations dampens competition among the suppliers, increasing the equilibrium wholesale prices. Therefore, the retailer prefers suppliers with highly correlated default events, despite the loss of diversification benefits. In contrast, the suppliers and the channel prefer defaults that are negatively correlated. However, as the number of suppliers increases our model predicts that the retailer may be able to take advantage of both competition and diversification.
"Vulnerable Options in Supply Chains: Effect of the Supplier Competition," Naval Research Logistics, 53 (7), October 2006, 656 - 673
Abstract:
Concerned with the risk of the supplier default, a firm may choose to diversify its orders among multiple suppliers. Furthermore, the discrepancy in production lead-times among suppliers furnishes a firm with a valuable option to defer ordering decisions until uncertainty has been partially resolved. The suppliers also have an option: to defer their pricing decisions. Using a single-period, multi-stage model of a two-echelon supply chain with competing risky suppliers and a single manufacturer, this paper investigates how the supplier default risk and default co-dependence affect manufacturer procurement and production decisions, supplier pricing decisions, firms profits, and the deferment option value and how the introduction of the deferment option alters supplier competition.
"Supply Disruptions, Asymmetric Information, and a Backup Production Option," with Z. Yang, G. Aydin, and D. Beil, forthcoming in Management Science
Abstract:
We study a manufacturer that faces a supplier privileged with private information about supply disruptions. We investigate how risk-management strategies of the manufacturer change, and examine whether risk-management tools are more, or less, valuable, in the presence of such asymmetric information. We model a supply chain with one manufacturer and one supplier, in which the supplier's reliability is either high or low and is the supplier's private information. Upon disruption the supplier chooses between paying a penalty to the manufacturer for the shortfall and using backup production to fill the manufacturer's order. Using mechanism design theory, we derive the optimal contract menu offered by the manufacturer. We find that information asymmetry may cause the less reliable supplier type to stop using backup production while the more reliable supplier type continues to use it. Additionally, the manufacturer may stop ordering from the less reliable supplier type altogether. The value of backup production for the manufacturer is not necessarily larger under symmetric information and, for the more reliable supplier type, it could be negative. The manufacturer is willing to pay the most for information when backup production is moderately expensive. The value of information may increase as supplier types become uniformly more reliable. Thus, higher reliability need not be a substitute for better information.
"Risk, Financing and the Optimal Number of Suppliers," with G. Aydin, P.-Y. Brunet, J. Keppo, R. Saigal, under review
Abstract:
We study how supply risk, fixed supplier costs, financial constraints, and the dual role played by suppliers as the providers of parts and the financiers of the manufacturer affect the relationship among firms in a supply chain, supplier selection, and supply chain performance. Using a one-period model, we consider the joint procurement and financing decisions of a firm with limited financial capital, facing either an uncertain demand or an uncertain supply. We find the optimal financing decisions and characterize the optimal operational decisions. Our analysis suggests that alternative financing sources (internal financing and trade credit loans) are substitutable and that the firm uses more suppliers if the internal financing is not available. Surprisingly, we also find that the wholesale price and the fixed cost of working with a supplier may affect the optimal number of suppliers in a non-monotone way. These results are explained by considering tradeoffs between the benefits of relaxing financing constraints and the costs of working with additional suppliers. By studying the balance between the expected profit and the value of the option to default, we explain the effects of supply uncertainty on the shareholders' value and the optimal decisions. Finally, we address the question of whether firms operating in developing economies should contract with more suppliers than firms operating in developed economies. The answer is "no" if the fixed cost of an extra supplier is high. However, our model predicts that financial constraints will force the firms in developing economies to suboptimal levels of production and cause higher stock-out rates, which is consistent with the results of earlier empirical studies.
"Independence of Capacity Ordering and Financial Subsidies to Risky Suppliers," (previous title: "Dealing with Supplier Bankruptcies: Costs and Benefits of Financial Subsidies), under review
Abstract:
The risk of supply disruptions due to suppliers' financial problems plays a prominent role in manufacturers' risk portfolios. Even large suppliers (e.g. Delphi) could file for bankruptcy, and manufacturer's actions, such as financial subsidies to the suppliers, affect profoundly suppliers' financial health. Using a dynamic, stochastic, periodic-review model of manufacturer's joint capacity reservation and financial subsidy decisions and a firm-value model of supplier's bankruptcy, we address the following questions: (1) How can one model the supplier's financial state and its relationship to the supplier's operational performance? (2) What are the operational benefits to the manufacturer from giving financial subsidies to the supplier, and what are the costs? (3) What is the optimal joint capacity ordering and financial subsidy policy for the manufacturer? (4) Should a powerful manufacturer share supply chain profits with a weaker supplier? We provide general conditions that allow the manufacturer to make ordering decisions independently from the subsidy decisions. In particular, to choose the optimal order quantities in the dynamic newsvendor setting, the manufacturer should use the newsvendor critical fractile expression. We provide conditions for the optimal subsidy policy to have a "subsidize-up-to" structure, perform comparative statics analysis, and describe conditions when the manufacturer may choose to share supply chain profits with the supplier.
"Supply Disruptions, Asymmetric Information, and a Dual Sourcing Option," with Yang Z., G. Aydin, D. Beil, under review
Abstract:
We study a manufacturer's strategic use of a dual-sourcing option when facing suppliers who possess private information about their likelihood of experiencing a supply disruption. The manufacturer can diversify its supply by ordering from both suppliers, but we find that the cost of doing so is inflated under asymmetric information due to the suppliers' incentives to misrepresent their reliabilities. If the manufacturer instead sole-sources, competition between the suppliers curbs their informational rents. Therefore, asymmetric information pushes the manufacturer away from diversification and towards sole-sourcing. Surprisingly, the additional cost that asymmetric information imposes on diversification may cause the manufacturer to cease diversifying in reaction to uniformly eroding supply base reliability, while it would do just the opposite under symmetric information. Despite these trends away from diversification, the value of the dual-sourcing option should not be underestimated for manufacturers who are unsure of their suppliers' reliabilities | the dual-sourcing option is actually more valuable under asymmetric information than under symmetric information if the manufacturer's cost of replacing a unit lost due to a disruption is moderate. We also analyze the effect of codependence between supply disruptions, and find that a reduction in supplier codependence increases the manufacturer's value of information. Therefore, strategic actions to reduce codependence between supply disruptions should not be seen as a substitute for learning about the suppliers' reliabilities.
"Unit-Contingent Electricity Swap and Asymmetric Information About Plant Outage," with Wu O., under review
Abstract:
This paper analyzes a unit-contingent swap contract between a power plant and an electricity distributor. Under such a contract the distributor pays the power plant a fixed price if the plant is operational and nothing if plant outage occurs. Pricing a unit-contingent swap is complicated by the fact that the power plant's operational status is its private information and is costly for the distributor to observe. The difference between the electricity spot price and the unit-contingent swap price provides an incentive for the plant to misreport its status and earn profit at the distributor's expense. To prevent misreporting the distributor may inspect the plant and levy penalties if misreporting is discovered. We model the Bayesian inspection game between the plant and the distributor, characterize the structure of the optimal penalties the distributor should impose, and compute the corresponding unit-contingent swap prices. We show that the seemingly undesirable misreporting behavior of the plant, when controlled well, can actually benefit both the plant and the distributor because misreporting could serve as a risk-allocation mechanism between the two parties.
Refereed Conference Proceedings
"Risk, Financing and the Optimal Number of Suppliers," Extended Abstract, MSOM 2005
"Designing Resilient Supply Chains: Diversification vs. Dedicated Supplier Procurement Strategies," Extended Abstract, MSOM 2006
"Dealing with Supplier Bankruptcies: Costs and Benefits of Financial Subsidies," Extended Abstract, MSOM 2007
"Supply Risk and Asymmetric Information," Extended Abstract, MSOM 2007
Papers Published in Non-Refereed Outlets
"Default Risk Management in Supply Chains: Reduced-Form vs. Structural Default Models,"
NSF Grantees Conference, Knoxville, TN -- January 2008
NSF Grantees Conference, St. Louis -- July 2006
Working Papers and Research Programs
"Design and Management of Franchise Networks," with A. Waring
"Resilient Supply Chains and Oligopoly Models," with A. Wadecki
"Designing Resilient Supply Chains: Diversification vs. Dedicated Supplier Procurement Strategies"
"Reduced-form Financial Defaults Models and Supply Chain Networks," with M. Van Oyen and D. Williams
"Inventory of Cash-Constrained Firms and the Option to Acquire Future Financing," with P.-Y. Brunet
"Lending Terms, Financial Decisions, and Operational Policies," with P.-Y. Brunet
"Investments, Hedging, and Frictions," with J. Keppo and K. Muthuraman
"A Mechanism to Implement the Optimal Centralized Solution of a Supply-chain Problem in Nash Equilibria," with S. Sharma, D. Teneketzis, and M. Van Oyen
"The Effect of Bankruptcies on LBO Decisions," with A. Wadecki
"Financing your suppliers," with Z. Wan and D. Beil
"Supply
Network Arbitrage," with Y.
Zhou and J. Keppo
Principal Investigator, "Default Risk Management in Supply Chains: Reduced-Form vs. Structural Default Models," NSF
Principal Investigator, "Workshop: Integrated Risk Management in Operations and Global Supply Chain Management: Risk, Contracts, and Insurance," NSF
Principal Investigator, "Resilient Supply Chains and Asymmetric Information," Rackham Faculty Research Grant
Principal Investigator, "Effect of Trade Credit on Operational Policies and Relationships between Banks, Suppliers, and Manufacturers in a Competitive Environment," Rackham - AGEP (summer graduate student support)
Principal Investigator, "Supply Risk Management and Asymmetric Information," NSF
INFORMS Conference, 2008, "Unit-Contingent Electricity Swap and Asymmetric Information about Plant Outage" (presentation by O. Wu)
INFORMS Conference, 2008, "Subsidizing Risky Suppliers: A Comparison of Supply Chain Structures" (presentation by A. Wadecki)
INFORMS Conference, 2008, "On Supply Risk and Asymmetric Information" (presentation by Z. Yang)
INFORMS Conference, 2008, "Mechanism Implementing in Nash Equilibria the Optimal Centralized Solution of a Supply Chain Problem" (presentation by S. Vandana)
INFORMS Conference, 2007, "Dealing with Supplier Bankruptcies: Costs and Benefits of Financial Subsidies"
INFORMS Conference, 2007, "Inventory of cash-constrained firms and the option to acquire future financing" (presentation by P.-Y. Brunet)
Mini-conference on the Integrated Risk Management in Operations and Global Supply Chain Management, 2007, "Dealing with Supplier Bankruptcies: Costs and Benefits of Financial Subsidies"
Workshop on the Frontiers of Research in Supply Chain Management sponsored by the Chinese Academy of Sciences, Beijing, China, 2007, "Dealing with Supplier Bankruptcies: Financial Subsidies, Competition, and Asymmetric Information"
University of Iowa, Mechanical and Industrial Engineering Seminar Series, 2007, "Supply Risk, Asymmetric Information, and a Backup Production Option"
Financial Engineering Seminar, University of Michigan, 2007, "Dealing with Supplier Bankruptcies: Costs and Benefits of Financial Subsidies"
Socio-Technical Infrastructure for Electronic Transactions (STIET) Seminar, University of Michigan, 2007, "Supply Risk, Asymmetric Information, and a Backup Production Option"
Krannert School of Management Seminar Series, Purdue University, 2006, "Risk, Financing and the Optimal Number of Suppliers"
INFORMS Conference, 2006, "Resilient Supply Chains: Supplier Bankruptcies and Financial Subsidies"
Olin Business School Seminar Series, Washington University, 2006, "Dealing with Supplier Bankruptcy: the Benefits of Diversification and the Costs of Financial Subsidies"
Integrated Finance and Operations Management Conference, Carnegie-Mellon University, 2006, "Risk, Financing and the Optimal Number of Suppliers"
INFORMS Conference, 2005, "Risk, Financing and the Optimal Number of Suppliers"
Mini-symposium on Enterprise Risk Management, SIAM Conference, 2005, "Risk, Financing and the Optimal Number of Suppliers"
Applied Probability Society Conference, 2005, "Risk, Financing and the Optimal Number of Suppliers"
Ford R&D Group Seminar, 2005, "Risk, Financing and the Optimal Number of Suppliers"
NSF Workshop on Supply Chain Management, 2005, "Risk, Financing and the Optimal Number of Suppliers"
INFORMS Conference, 2005, "Designing Resilient Supply Chains: Diversification vs. Dedicated Supplier Procurement Strategies"
Mini-conference on the Integrated Risk Management in Operations and Global Supply Chain Management, 2005, "Resilient Supply Chains: Benefits of Diversification and Vulnerable Deferment Options in the Presence of Competition"
Mini-conference on the Integrated Risk Management in Operations and Global Supply Chain Management, 2004, discussant for "Optimal Control and Hedging of Operations in the Presence of the Financial Markets," by Rene Caldentey and Martin Haugh
NSF Workshop on Supply Chain Management, 2004, "Vulnerable Deferment Options in Supply Chains and Effects of Correlated Supplier Defaults"
INFORMS Conference, 2003, "On Credit Risk in Supply Chains: Is Negative Default Correlation Among Suppliers Desirable?"
University of Michigan, 2003, "Effects of Correlated Defaults in Supply Chain"
University of Florida, 2003, "Effects of Correlated Defaults in Supply Chain"
Purdue University, 2003, "Effects of Correlated Defaults in Supply Chain"
Auburn University, 2003, "Effects of Correlated Defaults in Supply Chain"
Carnegie-Mellon University, 2003, "Effects of Correlated Defaults in Supply Chain"
University of Toronto, 2003, "Effects of Correlated Defaults in Supply Chain"
Northwestern University, 2003, "Pre-IPO Operational and Financial
Decisions"
Logistics engineer at Penske Logistics, Beachwood, Ohio (full-time, July 2000 to August 2001 and May 1999 to August 1999)
Database developer/Programmer at CWRUnet Services, Case Western Reserve University, Cleveland, Ohio (full-time, Summer 1996, Summer 1997, and Summer 1998)
Programmer at Insurance Company "OMETA," Kiev, Ukraine (part-time February 1993 to August 1993)
Programmer at Data Processing Center of Systems Engineering Association, Kiev, Ukraine (full-time -- Summer 1990 and Summer 1991)
Laboratories and Research Centers
IDEAL -- Inter-Disciplinary Enterprise Agility Laboratory
IFORM -- Integrated Financial and Operational Risk Management
Workshop/conference on the "Integrated Risk Management in Operations Global Supply Chain Management: Risk, Contracts, and Insurance," Ann Arbor, MI, June 2 -- 4, 2006
Manufacturing & Service Operations Management, Special Interests Group Conference "Research and Applications at the Interface of Finance, Operations and Risk Management (iFORM)," Boston, MA, June 28, 2009
Founding Chair, Special Interests Group, "Interface of Finance, Operations and Risk Management (iFORM)," Manufacturing & Service Operations Management Society -- 2008
Cluster Chair, Interface of Finance, Operations and Risk Management cluster, INFORMS Conference -- 2008
Session Chair, INFORMS Conferences -- 2006, 2005Session Chair, mini-conference on the Integrated Risk Management in Operations and Global Chair Supply Chain Management, St. Louis, MO -- June 2005
Reviewer, Production and Operations Management Society Student Paper Competition -- 2008
Reviewer, Manufacturing and Service Operations Management Conference -- 2006
Panelist on the National Science Foundation proposal review panels
Member of the Editorial Board for Manufacturing & Service Operations Management -- 2004
Referee for Manufacturing & Service Operations Management, Management Science, Operations Research, Engineering Economist, INTERFACES, Naval Research Logistics, Production and Operations Management
Coordinator, IOE Department seminar -- Winter 2004
Institute for Operations Research and the Management Sciences
Sigma Xi, The Scientific Research Society
The American Finance Association
Participant of the Young Researcher Roundtable, INFORMS Practice Conference, April 2005
Participant of the Doctoral Colloquium, INFORMS Conference, November 2002
Recipient of Endowment-Sponsored Mentorship Program Grant, School of Graduate Studies, Case Western Reserve University -- Summer 2003
Recipient of Summer Research Grant, Department of Operations, Weatherhead School of Management, Case Western Reserve University -- Summer 2003
Recipient of graduate scholarship, Department of Operations, Weatherhead School of Management, Case Western Reserve University -- 1998 - 2003
Recipient of graduate scholarship, Department of Mathematics, Case Western Reserve University -- 1995 - 1998
"Supply Chain Management" (IOE 641), Department of Industrial and Operations Engineering, University of Michigan -- Winter 2004, Winter 2005, Winter 2006, Winter 2007, Winter 2008
Research in Supply Chain Management course for Ph.D. students
"Derivative Instruments" (IOE 453), Department of Industrial and Operations Engineering, University of Michigan -- Winter 2006, Winter2007, Winter 2008
Derivatives course for undergraduate and graduate engineering students
"Corporate Finance" (IOE 452), Department of Industrial and Operations Engineering, University of Michigan -- Fall 2003, Fall 2004, Fall 2005, Fall 2006, Fall 2007, Fall 2008
Core Corporate Finance course for undergraduate and graduate engineering students
Faculty Co-Advisor for Tauber Institute projects -- Summer 2004, Summer 2005, Summer 2007, Summer 2008
Tauber Institute Team Projects are 14-week multidisciplinary, collaborative internships during which students work on manufacturing issues to potentially earn or save sponsoring companies millions of dollars. TI teams are supported by University of Michigan faculty. Advisors from both the College of Engineering and Business School - two leading experts in their fields - oversee the projects and add their knowledge base. Faculty advisors consult regularly with students and make on-site visits to review their progress firsthand.
"Statistics Camp for MBA students", Weatherhead School of Management, Case Western Reserve University -- Fall 2002, Summer 2002, Spring 2002, and Spring 2000
Introduction to basic statistical concepts for part-time MBA students
Facilitator in "Asset Pricing seminar", Department of Operations, Case Western Reserve University -- Fall 2002 and Summer 2002
"Mathematical Foundations for Advanced Studies", Department of Operations, Case Western Reserve University -- Fall 2001
Review of mathematical proof techniques and introduction to abstract mathematical reasoning for first year Ph.D. students
"Mathematical Foundations of Operations Research", Department of Operations, Case Western Reserve University -- Fall 1999 and Fall 1998
Review of the concepts, techniques, and applications of linear algebra and calculus for first year Ph.D. students
"Mathematics for Business and Social Sciences I and II", Department of Mathematics, Case Western Reserve University -- from 1995 to 1998
Core mathematics course for undergraduate students in business and social sciences
"Algebra and Trigonometry", Department of Mathematics, Case Western Reserve University -- Spring 1996
Pre-calculus course
Last updated
12/19/2008
