Management of disruption risk in global supply chains

Global supply chains (GSCs) are an integral part of the twenty-first century economy. A disruption occurring within a supply chain, whether it is attributable to a natural disaster or a human-induced event, presents substantial risk to organizations within the supply chain and the markets that it serves. In this paper, we discuss new research toward a risk-based modeling approach to managing a GSC disruption. We introduce the concept of a supply-risk network to capture potential disruptions. Using this framework, we formulate a GSC disruption-risk model that allows for organizations within the supply chain to strategically plan for the sourcing (i.e., procurement) and flow of goods throughout the supply chain in a manner that directly incorporates the risk of disruption. The GSC disruption-risk model is formulated as a two-stage stochastic integer programming problem with fixed recourse, which is an appropriate modeling approach when decisions can be made after uncertainties are resolved in order to ensure that the stochastic constraints hold. This formulation is illustrated with an example five-node network. Furthermore, we explore implications of increasing the reliability of nodes in the network. Finally, we conclude with implications for further theoretical research and for managerial practice.