Centrality of the Supply Chain Network

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With the increasing availability of supply chain information, researchers are paying increasing attention to information flows and interactions between suppliers and customers; however, shocks to a supplier not only impact its immediate customers, but also generate ripple effects on the whole economy through the supply chain network. This paper strives to define the relative importance, or centrality, of a supplier in the whole supply chain network, and understand how the most central suppliers to the economy behave differently, and how they interact with the aggregate economy and the business cycle. 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, and computes the supplier centralities of each company based on a list of centrality definitions. The paper then forms supplier central stock portfolios based on the centrality estimates, and perform historical analysis on their behaviors. Historical analysis shows that supplier central portfolios tend to be more volatile than average, and the stock performance of supplier central portfolios tends to predict the movements of the overall stock market.