Systemic risk mitigation in supply chains through network rewiring

Giacomo Zelbi, Leonardo Niccol\`o Ialongo and Stefan Thurner

Papers from arXiv.org

Abstract: The networked nature of supply chains makes them susceptible to systemic risk, where local firm failures can propagate through firm interdependencies that can lead to cascading supply chain disruptions. The systemic risk of supply chains can be quantified and is closely related to the topology and dynamics of supply chain networks (SCN). How different network properties contribute to this risk remains unclear. Here, we ask whether systemic risk can be significantly reduced by strategically rewiring supplier-customer links. In doing so, we understand the role of specific endogenously emerged network structures and to what extent the observed systemic risk is a result of fundamental properties of the dynamical system. We minimize systemic risk through rewiring by employing a method from statistical physics that respects firm-level constraints to production. Analyzing six specific subnetworks of the national SCNs of Ecuador and Hungary, we demonstrate that systemic risk can be considerably mitigated by 16-50% without reducing the production output of firms. A comparison of network properties before and after rewiring reveals that this risk reduction is achieved by changing the connectivity in non-trivial ways. These results suggest that actual SCN topologies carry unnecessarily high levels of systemic risk. We discuss the possibility of devising policies to reduce systemic risk through minimal, targeted interventions in supply chain networks through market-based incentives.

Date: 2025-04, Revised 2025-04
New Economics Papers: this item is included in nep-net and nep-tra
References: Add references at CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/2504.12955 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2504.12955

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().