Adapting product and supply chain systems under severe uncertainty

Currently, adaptation in a virtual enterprise is mostly reactive in response to variations that have already occurred. In order to remain profitable in the highly competitive global market, it is highly desirable to proactively adapt in anticipation of unplanned, but foreseeable high impact events, while still maintaining competitive product quality, cost, and lead-time. This paper approaches the problem by developing a unified model of product-supply chain systems based on networks of design-supplier pairs, and decision models of adaptation in the event of a jump based on real options theory. Application to a single component, single echelon supply chain is discussed.