Integration in the Supply Chain - use of Real Options to mitigate the costs of the Bullwhip Effect
Bullwhip EffectSupply ChainReal Option ContractsStackelberg competitionManagement of enterprisesFöretagsledningManagementBusiness and Economics
Purpose: During the last years Real Options have been established in many areas of the day-to-day business. Recent literature also tries to address Supply Chain problems with option theory, since an efficient Supply Chain increasingly gains in importance as a significant competitive advantage. This thesis tries to answer the question, if Real Options can mitigate the costs induced by the Bullwhip Effect as one of the major problems in Supply Chains. Methodology: The authors of the thesis used a deductive approach. Based on a theoretical model utilizing Real Option contracts and under the usage of a randomly created dataset the influence of the Bullwhip Effect on the company?s business and financial structure is examined and subsequently analyzed. Conclusion: The authors showed that the Real Option approach can have some negative impact on the firm value, due to an increased risk exposure, but it is believed that the positive effects, namely the drastic increase in profits and the improvement in customer service levels, will overcompensate its drawbacks. Thus, it makes the Real Option approach a valuable tool to reduce the costs, which are induced by the Bullwhip Effect.