Risk diversification and risk pooling in supply chain design

Mak, Ho-Yin and Shen, Zuo-Jun (Max) (2012) Risk diversification and risk pooling in supply chain design. IIE Transactions, 44 (8). pp. 603-621.


Recent research has pointed out that the optimal strategies to mitigate supply disruptions and demand uncertainty are often mirror images of each other. In particular, risk diversification is favorable under the threat of disruptions and risk pooling is favorable under demand uncertainty. This article studies how dynamic sourcing in supply chain design provides partial benefits of both strategies. Optimization models are formulated for supply chain network design with dynamic sourcing under the risk of temporally dependent and temporally independent disruptions of facilities. Using computational experiments, it is shown that supply chain networks that allow small to moderate degrees of dynamic sourcing can be very robust against both disruptions and demand uncertainty. Insights are attained on the optimal degree of dynamic sourcing under different conditions.

Item Type: Article
Keywords: Supply chain design, facility location, disruption management, inventory sharing, stochastic programming, management science
Subject(s): Management science
Date Deposited: 17 Jul 2015 14:13
Last Modified: 09 Aug 2018 08:29
Funders: not applicable
URI: http://eureka.sbs.ox.ac.uk/id/eprint/5384

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