The importance of decoupling recurrent and disruption risks in a supply chain

Sunil Chopra, Gilles Reinhardt*, Usha Mohan

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

207 Scopus citations

Abstract

This paper focuses on the importance of decoupling recurrent supply risk and disruption risk when planning appropriate mitigation strategies. We show that bundling the two uncertainties leads a manager to underutilize a reliable source while over utilizing a cheaper but less reliable supplier. As in Dada et al. (working paper, University of Illinois, Champaign, IL, 2003), we show that increasing quantity from a cheaper but less reliable source is an effective risk mitigation strategy if most of the supply risk growth comes from an increase in recurrent uncertainty. In contrast, we show that a firm should order more from a reliable source and less from a cheaper but less reliable source if most of the supply risk growth comes from an increase in disruption probability.

Original languageEnglish (US)
Pages (from-to)544-555
Number of pages12
JournalNaval Research Logistics
Volume54
Issue number5
DOIs
StatePublished - Aug 2007

Keywords

  • Disruption
  • Dual sourcing
  • Inventory management
  • Supply chain risk

ASJC Scopus subject areas

  • Modeling and Simulation
  • Ocean Engineering
  • Management Science and Operations Research

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