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

Sunil Chopra, Gilles Reinhardt and Usha Mohan

Naval Research Logistics (NRL), 2007, vol. 54, issue 5, 544-555

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. © 2007 Wiley Periodicals, Inc. Naval Research Logistics, 2007

Date: 2007
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Persistent link: https://EconPapers.repec.org/RePEc:wly:navres:v:54:y:2007:i:5:p:544-555

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