Reliable Supply Chain Network Design

Risk management in supply chains has been receiving increased attention in the past few years. In this article, we present formulations for the strategic supply chain network design problem with dual objectives, which usually conflict with each other: minimizing cost and maximizing reliability. Quantifying the total reliability of a network design is not as straightforward as total cost calculation. We use reliability indices and develop analytical formulations that model the impact of upstream supply chain on individual entities’ reliability to quantify the total reliability of a network. The resulting multiobjective nonlinear model is solved using a novel hybrid algorithm that utilizes a genetic algorithm for network design and linear programming for network flow optimization. We demonstrate the application of our approach through illustrative examples in establishing tradeoffs between cost and reliability in network design and present managerial implications.

[1]  Eb Erik Diks,et al.  Multi-echelon systems: A service measure perspective , 1996 .

[2]  Sven Axsäter,et al.  Chapter 4 Continuous review policies for multi-level inventory systems with stochastic demand , 1993, Logistics of Production and Inventory.

[3]  S. Chopra,et al.  The importance of decoupling recurrent and disruption risks in a supply chain , 2007 .

[4]  M. Christopher,et al.  Supply chain risk management: outlining an agenda for future research , 2003 .

[5]  Amanda J. Schmitt.  Strategies for customer service level protection under multi-echelon supply chain disruption risk , 2011 .

[6]  Ram Akella,et al.  Supply management in assembly systems with random yield and random demand , 2000 .

[7]  L. B. Schwarz.  A Model for Assessing the Value of Warehouse Risk-Pooling: Risk-Pooling Over Outside-Supplier Leadtimes , 1989 .

[8]  W. Zijm,et al.  European Journal of Operational Research Materials Coordination in Stochastic Multi-echelon Systems , 2022 .

[9]  A. Nagurney,et al.  Supply chain outsourcing under exchange rate risk and competition , 2011 .

[10]  Christopher S. Tang,et al.  Researchers' Perspectives on Supply Chain Risk Management , 2011 .

[11]  Goldberg,et al.  Genetic algorithms , 1993, Robust Control Systems with Genetic Algorithms.

[12]  Thomas J. Goldsby,et al.  Supply chain risks: a review and typology , 2009 .

[13]  R. Narasimhan,et al.  Perspectives on risk management in supply chains , 2009 .

[14]  Philip M. Kaminsky,et al.  Managing the Supply Chain: The Definitive Guide for the Business Professional , 2003 .

[15]  B. Lev.  On the Association between Operating Leverage and Risk , 1974, Journal of Financial and Quantitative Analysis.

[16]  A. Federgruen.  Chapter 3 Centralized planning models for multi-echelon inventory systems under uncertainty , 1993, Logistics of Production and Inventory.

[17]  M. Parlar,et al.  Diversification under yield randomness in inventory models , 1993 .

[18]  Arda Yenipazarli,et al.  Managing Supply Chain Disruptions , 2009, Found. Trends Technol. Inf. Oper. Manag..

[19]  Chih-Yang Tsai,et al.  On supply chain cash flow risks , 2008, Decis. Support Syst..

[20]  Amy Z. Zeng,et al.  How many suppliers are best? A decision-analysis approach , 2004 .

[21]  Desheng Dash Wu,et al.  A review of enterprise risk management in supply chain , 2010, Kybernetes.

[22]  Y. Gousty,et al.  An integrated approach to project evaluation and selection , 1988 .

[23]  Hau L. Lee,et al.  Lot Sizing with Random Yields: A Review , 1995, Oper. Res..

[24]  Stephan M. Wagner,et al.  AN EMPIRICAL EXAMINATION OF SUPPLY CHAIN PERFORMANCE ALONG SEVERAL DIMENSIONS OF RISK , 2008 .

[25]  J. L. Cavinato.  Supply chain logistics risks: From the back room to the board room , 2004 .

[26]  Chase Rainwater,et al.  Vulnerability assessment and re-routing of freight trains under disruptions: A coal supply chain network application , 2014 .

[27]  F. T. Moore,et al.  Economies of Scale: Some Statistical Evidence , 1959 .

[28]  Christopher S. Tang,et al.  Managing Supply Chain Risk , 2012 .

[29]  F. Strozzi,et al.  Supply chain risk management: a new methodology for a systematic literature review , 2012 .

[30]  Brian Tomlin,et al.  On the Value of Mitigation and Contingency Strategies for Managing Supply Chain Disruption Risks , 2006, Manag. Sci..

[31]  Eric G. Olson.  Supply chain opportunity in an uncertain economic recovery , 2010 .

[32]  Feng-Sheng Wang,et al.  A hybrid method of evolutionary algorithms for mixed-integer nonlinear optimization problems , 1999, Proceedings of the 1999 Congress on Evolutionary Computation-CEC99 (Cat. No. 99TH8406).

[33]  David Perry,et al.  Analysis of a (Q, r, T) inventory policy with deterministic and random yields when future supply is uncertain , 1995 .

[34]  J. R. Carter,et al.  An analysis of supply risk assessment techniques , 2004 .

[35]  Kevin B. Hendricks,et al.  The effect of supply chain glitches on shareholder wealth , 2003 .

[36]  Mitsuo Gen,et al.  Genetic algorithm for non-linear mixed integer programming problems and its applications , 1996 .

[37]  T. Cheng,et al.  Competition and cooperation in a single-retailer two-supplier supply chain with supply disruption , 2010 .

[38]  Jitamitra Desai,et al.  A global optimization algorithm for reliable network design , 2010, Eur. J. Oper. Res..

[39]  Stephen C. Graves,et al.  Safety stocks in manufacturing systems , 1987 .

[40]  Sarada Prasad Sarmah,et al.  Sourcing decisions under risks of catastrophic event disruptions , 2011 .

[41]  Lino A. Costa,et al.  Evolutionary algorithms approach to the solution of mixed integer non-linear programming problems , 2001 .

[42]  Costas D. Maranas,et al.  Managing demand uncertainty in supply chain planning , 2003, Comput. Chem. Eng..

[43]  V. Tummala,et al.  Assessing and Managing Risks Using the Supply Chain Risk Management Process (SCRMP) , 2011 .

[44]  Kevin McCormack,et al.  Supply Chain Risk in Turbulent Environments – A Conceptual Model for Managing Supply Chain Network Risk , 2009 .

[45]  Yu Liu,et al.  Successive survivable routing for node failures , 2001, GLOBECOM'01. IEEE Global Telecommunications Conference (Cat. No.01CH37270).

[46]  Sri Krishna Kumar,et al.  Minimisation of supply chain cost with embedded risk using computational intelligence approaches , 2010 .

[47]  T. Davis.  Effective supply chain management , 2020, Strategic Direction.

[48]  Danny Berry,et al.  Leagility: Integrating the lean and agile manufacturing paradigms in the total supply chain , 1999 .

[49]  Jennifer Blackhurst,et al.  A model for inbound supply risk analysis , 2006, Comput. Ind..

[50]  Y. Sheffi.  Supply Chain Management Under The Threat Of International Terrorism , 2001 .

[51]  Christopher S. Tang.  Perspectives in supply chain risk management , 2006 .

[52]  Zuo-Jun Max Shen,et al.  Inventory Systems with Stochastic Demand and Supply: Properties and Approximations , 2010 .

[53]  Thomas L. Saaty,et al.  Decision Making for Leaders: The Analytical Hierarchy Process for Decisions in a Complex World , 1982 .

[54]  M. Christopher,et al.  Building the Resilient Supply Chain , 2004 .

[55]  Yigal Gerchak,et al.  Multiple Lotsizing in Production to Order with Random Yields: Review of Recent Advances , 2004, Ann. Oper. Res..

[56]  M. Goetschalckx,et al.  MODELING THE EFFECT OF UNCERTAINTIES ON GLOBAL LOGISTICS SYSTEMS. , 2000 .

[57]  Marc Goetschalckx,et al.  Strategic production-distribution models: A critical review with emphasis on global supply chain models , 1997 .

[58]  Lawrence V. Snyder,et al.  Reliability Models for Facility Location: The Expected Failure Cost Case , 2005, Transp. Sci..

[59]  Amy Z. Zeng,et al.  Single or dual sourcing: decision-making in the presence of supply chain disruption risks , 2009 .

[60]  Srinivas Talluri,et al.  A Supply Risk Reduction Model Using Integrated Multicriteria Decision Making , 2008, IEEE Transactions on Engineering Management.

[61]  Paul H. Zipkin,et al.  Foundations of Inventory Management , 2000 .

[62]  K. B. Hendricks,et al.  An Empirical Analysis of the Effect of Supply Chain Disruptions on Long‐Run Stock Price Performance and Equity Risk of the Firm , 2005 .

[63]  David E. Goldberg,et al.  Real-coded Genetic Algorithms, Virtual Alphabets, and Blocking , 1991, Complex Syst..

[64]  S. Chopra,et al.  Managing Risk To Avoid Supply-Chain Breakdown , 2004 .

[65]  M. Goetschalckx.  Strategic Network Planning , 2005 .

[66]  Jonathan Cole Smith,et al.  Branch-and-price-and-cut algorithms for solving the reliable h-paths problem , 2008, J. Glob. Optim..

[67]  George N. Kenyon,et al.  A Model for Evaluating Supply Chain Risk , 2008 .

[68]  Alain Martel,et al.  The design of robust value-creating supply chain networks , 2010, Eur. J. Oper. Res..

[69]  Feng Wu,et al.  A portfolio approach to managing procurement risk using multi-stage stochastic programming , 2011, J. Oper. Res. Soc..

[70]  Zhong Zhou,et al.  Alpha Reliable Network Design Problem , 2007 .

[71]  Kevin P. Scheibe,et al.  Supplier Risk Assessment and Monitoring for the Automotive Industry , 2008 .

[72]  J. Martha,et al.  TARGETING A JUST-IN-CASE SUPPLY CHAIN FOR THE INEVITABLE NEXT DISASTER. , 2002 .

[73]  Michael C. Georgiadis,et al.  Optimal design of supply chain networks under uncertain transient demand variations , 2011 .

[74]  Yong Lin,et al.  The impacts of product design changes on supply chain risk: a case study , 2011 .

[75]  D. Bogataj,et al.  Measuring the supply chain risk and vulnerability in frequency space , 2007 .

[76]  D. Thurston,et al.  Modeling Robust and Reliable Supply Chains , 2003 .

[77]  Christopher S. Tang,et al.  The power of flexibility for mitigating supply chain risks , 2008 .

[78]  Kevin B. Hendricks,et al.  Association Between Supply Chain Glitches and Operating Performance , 2005, Manag. Sci..

[79]  David E. Goldberg,et al.  Genetic Algorithms in Search Optimization and Machine Learning , 1988 .

[80]  Anna Nagurney,et al.  A Bi-Criteria Measure to Assess Supply Chain Network Performance for Critical Needs Under Capacity and Demand Disruptions , 2010 .

[81]  Lian Qi,et al.  The Effect of Supply Disruptions on Supply Chain Design Decisions , 2010, Transp. Sci..

[82]  Yuanjie He,et al.  Random yield risk sharing in a two-level supply chain , 2008 .

[83]  John H. Holland,et al.  Adaptation in Natural and Artificial Systems: An Introductory Analysis with Applications to Biology, Control, and Artificial Intelligence , 1992 .

[84]  O. Tang,et al.  Identifying risk issues and research advancements in supply chain risk management , 2011 .

[85]  Z. K. Weng,et al.  THE DESIGN OF A JIT SUPPLY CHAIN: THE EFFECT OF LEADTIME UNCERTAINTY ON SAFETY STOCK , 1999 .

[86]  Kalyanmoy Deb,et al.  Nonlinear goal programming using multi-objective genetic algorithms , 2001, J. Oper. Res. Soc..

[87]  Amanda J. Schmitt,et al.  OR/MS models for supply chain disruptions: a review , 2014 .

[88]  J. Mentzer,et al.  Global supply chain risk management strategies , 2008 .

[89]  Tao Yang,et al.  Risk adjusted multicriteria supplier selection models with applications , 2010 .

[90]  Saibal Ray,et al.  Supply Side Story: Risks, Guarantees, Competition and Information Asymmetry , 2010, Manag. Sci..

[91]  W. Zinn,et al.  Proactive planning for catastrophic events in supply chains , 2009 .

[92]  A. Ruiz-Torres,et al.  The optimal number of suppliers considering the costs of individual supplier failures , 2007 .

[93]  S. N. Sivanandam,et al.  Genetic Algorithm Optimization Problems , 2008 .

[94]  William Ho,et al.  Models for supplier selection and risk mitigation: a holistic approach , 2018, Int. J. Prod. Res..

[95]  H. Walker,et al.  Risk in supply networks , 2003 .

[96]  Mahmut Parlar,et al.  Continuous-review inventory problem with random supply interruptions , 1997 .

[97]  K. Inderfurth.  Safety stocks in multistage divergent inventory systems: A survey , 1994 .

[98]  P. Pardalos,et al.  Optimal Risk Path Algorithms , 2002 .

[99]  Seung-Lae Kim,et al.  Production and delivery policies for enhanced supply chain partnerships , 2008 .