Out of Sight, out of Mind? Modeling the Impacts of Financial Squeeze on Extended Supply Chain Networks

Firms increasingly put financial pressure on their suppliers, also called squeezing. Suppliers react and adapt to financial squeeze as autonomous agents, causing complex ripple effects across the extended supply chain network. To capture intertwined and highly interactive effects among suppliers, we use agent‐based models. We explore the impact of financial squeeze on supply chain network structure and operational outcomes. Results suggest that financial squeeze affects the stability of the supply chain network and the effect varies depending on the location of the suppliers. Firms located at the bottom of the supply chain network suffer most from financial squeeze, and the magnitude of the effect increases as one goes further upstream. In addition, as existing suppliers exit the network and new suppliers enter, three network archetypes (Empty Nest, TransitUp, and StableDown) emerge. We identify the condition and operational consequences associated with these three archetypes. Our findings are informative to managers at buyer firms about the impacts of squeezing strategy on their extended supply chain partners, who often times are out of their immediate purview.