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One of the most critical issues facing supply chain managers in today’s globalized and highly uncertain business environments is how to deal proactively with disruptions that might affect the complicated supply networks characterizing modern enterprises. Supply Chain Disruptions: Theory and Practice of Managing Risk presents a state-of the-art perspective on this particular issue.

Supply Chain Disruptions: Theory and Practice of Managing Risk demonstrates that effective management of supply disruptions necessitates both strategic and tactical measures – the former involving optimal design of supply networks; the latter involving inventory, finance and demand management. It shows that managers ought to use all available levers at their disposal throughout the supply network – like sourcing and pricing strategies, providing financial subsidies, encouraging information sharing and incentive alignment between supply chain partners – in order to tackle supply disruptions. The editors combine up-to-date academic research with the latest operational risk management practices used in industry to demonstrate how theoreticians and practitioners can learn from each other.

As well as providing a wealth of knowledge for students and professors who are interested in pursuing research or teaching courses in the rapidly growing area of supply chain risk management, Supply Chain Disruptions: Theory and Practice of Managing Risk also acts as a ready reference for practitioners who are interested in understanding the theoretical underpinnings of effective supply disruption management techniques.



Chapter 1. Supply Chain Disruptions and Corporate Performance

Managers are becoming increasingly aware that their companys reputation, earnings consistency, and ability to deliver better shareholder returns are increasingly dependent on how well they manage supply chain disruptions. Although firms have always faced the risk of supply chain disruptions, the attention it receives has increased dramatically in recent years. This is likely driven by at least four developments. First, supply chains have become more complex due to globalization, outsourcing, single sourcing, and the focus on removing slack from supply chains. While many of these strategies have improved performance, these strategies have also made supply chains more prone to disruptions.

Kevin B. Hendricks, Vinod R. Singhal

Chapter 2. Mitigating the Impact of Disruptions in Supply Chains

Supply chain risk management is of growing importance, as globalization extends supply chains and makes them more vulnerable to a wide range of disruptive events. Supply interruptions can be the result of large-scale natural diasters, terrorist attacks, plant fires, electrical blackouts, financial or political crises, and many other scenarios.

Wallace J. Hopp, Seyed M. R. Iravani, Zigeng Liu

Chapter 3. Sourcing Strategies to Manage Supply Disruptions

Supplier diversification and backup sourcing offer alternatives to stockpiling inventory as a means of mitigating disruption risks. In this chapter, we introduce some simple models to analyze and explore the performance of these sourcing strategies. The effectiveness of diversification depends largely on the number of suppliers, the possibility of disruption correlation, and the available spare capacity at suppliers. Most of the benefits are achieved with a small number of suppliers. The effectiveness of backup sourcing depends largely on the cost and availability of the backup source, with availability being measured as response time and capacity provided. When choosing the appropriate strategy, managers need to account for all the significant factors that influence performance, including the disruption profile, inventory costs, the fixed and variable supplier costs, capacities, response times, and disruption correlation. Crafting the best strategy relies on sound judgment aligned with suitable analysis.

Amanda J. Schmitt, Brian Tomlin

Chapter 4. Supply Chain Management Under Simultaneous Supply and Demand Risks

In this chapter, we characterize how supply risks arising from yield uncertainties impact on supply chain management. We first consider the implications for the procurement strategies of a firm which has access to a set of potential suppliers which differentiate themselves in terms of their prices and yield distributions. The fundamental questions that arise here are (i) how many suppliers to maintain and diversify one’s purchase orders amongst; (ii) how to select the desired number of suppliers from the set of potential suppliers; (iii) how to adjust one’s inventory strategy to account for the supply risk, in particular how total purchase quantities should be set in the simultaneous presence of supply and demand risks; (iv) the final question is how aggregate orders are to be split among the selected suppliers and whether the tradeoffs between reliability and cost differentials among the suppliers can be captured in terms of simple allocation rules.

We first characterize the answers to the above questions assuming given cost and reliability profiles of the potential suppliers. In the last part of this chapter, we proceed to analyze how these competing suppliers may wish to invest in process and technology improvements so as to “optimally” affect their reliability characteristics and resulting market shares.

Awi Federgruen, Nan Yang

Chapter 5. Inventory Strategies to Manage Supply Disruptions

Disruptions in supply chains occur routinely—both large ones, due to natural disasters, labor strikes, or terrorist attacks, and small ones, due to machine breakdowns, supplier stockouts, or quality problems (to name a few examples). Companies whose supply processes are affected by disruptions may experience delays in transportation and dysfunction in some of their facilities, which may result in inventory shortages. Although firms can take measures to prevent them, some disruptions are inevitable. Hence, in order to avoid the drastic impact of these disruptions, firms need to protect against them. There are multiple tactics that companies can choose from for managing the risk of disruptions. One of the most common tactics is to use inventory to buffer against the additional uncertainty. The main concern in inventory management problems is to find the optimal replenishment policy that tells when, from whom and how much to order.

Zümbül Atan, Lawrence V. Snyder

Chapter 6. Manufacturer Competition and Subsidies to Suppliers

Dealing with risky suppliers is a part of everyday business for manufacturers. For example, the domestic automotive supply industry has faced numerous hardships as some of its largest firms have flirted with bankruptcy, or have been subsumed by Chap 11 over the past few years. Nearly 30% of the pre-existing North American automotive supply base had filed for bankruptcy by the end of 2008. Half are predicted to file for bankruptcy before the end of 2010.

Adam A. Wadecki, Volodymyr Babich, Owen Q. Wu

Chapter 7. Supply Contracting Under Information Asymmetry and Delivery Performance Consideration

A global economy and rapidly-changing market conditions have greatly intensified industry competition. This, in turn, has led to an ever-increasing level of outsourcing/offshoring activities by firms in order to gain cost advantage and market share [




]. According to the Department of Commerce [


], typical US manufacturers spend more than half of their revenue on goods and services obtained from external suppliers. As a result, supply management has become a significant issue for many companies that rely more on their suppliers for the delivery of components, products, and services. When sourcing from outside suppliers, a buyer should consider both price and non-price factors.

Fuqiang Zhang

Chapter 8. Risk, Financing and the Optimal Number of Suppliers

Should firms in developed economies work with more or fewer suppliers than firms in developing economies? More generally, how does the number of suppliers for a firm depend on the firm’s economic environment? To answer these questions we identify several economic and business factors that might affect the number of suppliers (and that separate developed and developing economies): supply risk, fixed costs of working with suppliers, and access to financing (particularly trade-credit financing).

Volodymyr Babich, Göker Aydın, Pierre-Yves Brunet, Jussi Keppo, Romesh Saigal

Chapter 9. A Reengineering Methodology for Supply Chain Networks Operating Under Disruptions

Goods are procured, produced and distributed to customers using supply chain networks (SCN) involving several facilities owned by a company, or a set of collaborating companies. These networks are engineered or reengineered through strategic decisions on the number, location, capacity, and mission of their production–distribution facilities. Decisions on the selection of suppliers, subcontractors, and 3PLs, and on the offers to make to product-markets, may also be involved.

Alain Martel, Walid Klibi

Chapter 10. Optimizing the Hunter Valley Coal Chain

Coal remains the most important energy source for power generation, providing 37% of the world’s electricity. As the global population grows, and as living standards improve in the developing world, international demand for energy is increasing at a rapid rate. Coal is still the most abundant, widely distributed, safe, and economical fossil fuel available to meet this escalating energy demand.

Natashia L. Boland, Martin W. P. Savelsbergh

Chapter 11. Risk Assessment of Supply Chain During New Product Development: Applications in Discrete and Process Manufacturing Industries

Supply chains have become increasingly global and complex over the years with manufacturers sourcing raw materials and components from geographically-dispersed suppliers. Reduced costs, access to capacity, focus on core activities, etc are some of the advantages associated with outsourcing different aspects of product development, manufacturing and logistics. However, managing a complex network of global suppliers and sub-contractors to ensure cost-effective, high-quality and timely deliveries has become a daunting task for practicing managers. Moreover, customers have become increasingly demanding and there is pressure on companies across industries to develop and launch a wide variety of products in shorter time. To manage a complex supply network, it is an imperative that supply chain decisions are made integral part of the new product planning. Any glitch in the global supply chain not only will raise costs related to the remedial actions which are required after the occurrence of the event but also can delay the launch of products with serious financial losses to the participating companies in the supply chain.

Atanu Chaudhuri, Kashi N. Singh

Chapter 12. Supply Chain Risk Management

The next time you have a bucket of water, try to release a single drop of water into the bucket without generating a ripple. You will notice how ripples immediately oscillate back and forth for quite some time. The ripples reach all the way to the sides of the bucket and bounce back, resulting in an infinite number of waves. The bucket represents the world of global trade; the water an infinite number of supply networks that support the movement of materials, products, cash and information. An event (the “drop”) such as a catastrophic failure at the ports in Singapore (through which more than 50% of the world’s goods is shipped), could initiate an economic tidal wave.

Gary S. Lynch

Erratum to: Supply Chain Disruptions

Haresh Gurnani, Anuj Mehrotra, Saibal Ray
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