Centrality of the Supply Chain Network

Abstract

With the increasing availability of supply chain information, researchers are paying increasing attention to information flows and interactions between suppliers and customers. This paper examines the interactions from the perspective of an economy-wide supply-chain network, and propose a list of network centrality measures to capture the relative importance of each company within this network. Based on information from the FactSet Supply Chain Relationships database, the paper builds a supplier-customer network matrix at the beginning of each year from 2004 to 2014, computes the supplier and customer centralities of each company, and constructs supplier and customer central stock portfolios based on the centrality estimates. Historical analysis shows that supplier central portfolios tend to be more volatile than customer central portfolios. Furthermore, the stock performance of supplier central portfolios tends to predict the movements of the overall stock market.

Keywords: Supply chain, directed network, centrality, supplier centrality, customer centrality, eigenvector centrality, PageRank

JEL Classification: G10, G14