The risk of second-tier supplier failures in serial supply chains: Implications for order policies and distributor autonomy

As organizations decrease inventory, the potential impact of a supply disruption increases. However, due to supply chain structural changes, the likelihood of a disruption may be less. Additionally independent supply chain actors may react to policy changes, changing supply chain configurations and perhaps reducing loss magnitudes. If risk is a product of likelihood and magnitude, does higher inventory reduce an organization's supply related risk? This paper examines the supply risk issue within the context of a second-tier supply failure, and is grounded in inventory and resource dependency theories. By evaluating risk assessment in a simulation environment, exploratory findings suggest that increased inventory in a tiered supply chain can sometimes increase supply risk rather than decrease it. Managerial insights into the effects of supply chain stability and coordination are provided. By taking a systems perspective of supply risk management, organizations will be better able to manage supply risk concerns. (c) 2007 Elsevier B.V. All rights reserved.