Epsilon Archive for Student Projects

Abstract

Global uncertainty causes unpredictability in the global trade environment. This affects Swedish exports of pulp and sawnwood. This thesis examines export planning and the managerial dilemma many decisions makers face; how early commitment to demand projection affects the risk of shift in trade environment resulting in poor performance and if export-allocation flexibility can create value.

This thesis follows a quantitative, scenario-based research design using real options theory and supply management theory. Using historical export data to create a baseline demand, volatility and stochastic shocks that varied across three trade environment scenarios (Liberalised, Status quo, Protectionist). Through a breakeven value the benefit of flexibility is captured, using a comparison between a rigid non-flexible export-allocation strategy and an export-allocation strategy that allows flexibility. Using Monte Carlo simulation, a service-band and flexibility cost the two export-allocations strategies had their breakeven value simulated in the three different trade environment scenarios.

The results showed that flexibility was scenario dependant. The breakeven value was positive in the Liberalised trade environment scenario, slightly negative in Status quo trade environment scenario and negative in the Protectionist trade environment scenario. The thesis showed that flexibility is justified in a favourable trade environment and not favourable in adverse and volatile trade environments.