Financial engineering of the integration of global supply chain networks and social networks with risk management

In this paper, we focus on the financial engineering of integrated global supply chain networks and social networks. Through a multilevel, dynamic supernetwork framework consisting of the global supply chain network with electronic commerce and the social network, we capture the multicriteria decision‐making behavior of the various decision‐makers (manufacturers, retailers, and consumers), which includes the maximization of profit, the maximization of relationship values, and the minimization of risk. Relationship levels in our framework are assumed to influence transaction costs as well as risk and to have value for the decision‐makers. We explore the dynamic co‐evolution of the global product transactions, the associated product prices, and the relationship levels on the supernetwork until an equilibrium pattern is achieved. The pricing mechanism guarantees that optimality for each decision‐maker is achieved in the financially engineered multitiered, multilevel supernetwork. We provide some qualitative properties of the dynamic trajectories, under suitable assumptions, and propose a discrete‐time algorithm, which yields explicit closed form expressions at each iteration for the tracking of the evolution of the global product transactions, relationship levels, and prices until an equilibrium is attained. We illustrate the model and computational procedure with several numerical examples. © 2006 Wiley Periodicals, Inc. Naval Research Logistics, 2006