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Ivanov 2021
Ivanov 2021
Dmitry Ivanov
Introduction
to Supply
Chain
Resilience
Management, Modelling, Technology
Classroom Companion: Business
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Introduction to
Supply Chain
Resilience
Management, Modelling, Technology
Dmitry Ivanov
Department of Business and Economics
Berlin School of Economics and Law
Berlin, Germany
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V
Preface
Resilience is of vital importance for design and management of viable value cre-
ation networks. The design and management of not only an efficient but a resilient
supply chain capable of operations and demand fulfilment continuity despite
severe disruptions is imperative and has been highlighted in literature and practice
alike for the last two decades. However, the COVID-19 pandemic has unveiled the
lack of resilience in many supply chains, as complex networks failed from disrup-
tions at local nodes, their propagation (i.e., the ripple effect), and the resulting
missing connectivity.
Supply chain resilience theory explains how complex networks can maintain
connectivity, survive, and recover during and after disruptions and severe crises. At
the same time, since supply chains are a backbone of economy, providing markets
and society with goods and services (e.g., food, communication, and mobility) in a
non-interrupted manner despite disruptions and crises is directly connected to sup-
ply chain resilience. If supply chains are not resilient, if they disconnect and col-
lapse when facing disruptions and severe crises, then we all will be at risk of
shortages of critical products and services needed for our life.
Major local and global disruptions (e.g., natural and man-made catastrophes,
strikes, financial crises, and epidemic outbreaks) have significant adverse effects on
corporate performance, particularly for businesses with complex, global supply
chains. Managing disruptions and their associated effects is therefore a key focus
for firms posing resilience as a central determinant in supply chain management.
Supply chain resilience is a firm’s capability to withstand, adapt, and recover from
disruptions to meet customer demands, maintain some target performance and
operations continuity in a vulnerable environment. Resilience reflects the supply
chain’s systemic ability to absorb negative external disruptions and restore normal
operations.
The fundamentals of supply chain resilience theory have been developed in
response to more and more frequent natural and man-made disasters in the first
two decades of the twenty-first century. This knowledge has helped many firms to
cope with severe supply chain disruptions. On a larger scale, the importance of
supply chain resilience became highly evident during the COVID-19 pandemic that
has changed the operational conditions of many firms and supply chains on an
unprecedented scale. During the pandemic, companies have extensively dealt with
the concept of supply chain resilience as one of the central supply chain manage-
ment perspectives. Moreover, the COVID-19 pandemic has unveiled a new setting
for supply chain resilience, that is, the supply chain crisis and the associated notions
of supply chain viability and survivability, which goes beyond an event-driven dis-
ruption context of resilience.
Despite the increasing interest in and importance of supply chain resilience,
there is no concise and generally understandable source which could be taken as an
introduction to supply chain resilience. This book offers an introduction to supply
chain resilience in a concise but comprehensive form, covering management,
VI Preface
Dmitry Ivanov
Berlin, Germany
January 2021
VII
Abbreviations
Contents
Supplementary Information
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149
XI
Author Bio
Dmitry Ivanov
is professor of supply chain and operations management at Berlin School of Eco-
nomics and Law (HWR Berlin), deputy director and executive board member of the
Institute for Logistics (IfL) at HWR Berlin, and faculty director of the master’s
degree program on global supply chain and operations management at HWR Berlin.
His research explores structural dynamics and control in complex networks,
with applications to supply chain resilience, scheduling in Industry 4.0 systems,
supply chain simulation, risk analytics, and digital supply chain twins. He is co-
author of structural dynamics control methods for supply chain management. His
research coined several seminal academic and practical directions such as the rip-
ple effect in supply chains and supply chain viability. He applies mathematical pro-
gramming, simulation, control, and fuzzy theoretic methods. Based upon triangle
“process-model-technology,” he investigates the dynamics of complex networks in
production, logistics, and supply chains. Most of his research stems from real prac-
tical context and focuses on the interface of supply chain management, operations
research, industrial engineering, and digital technology.
He has been teaching courses in operations management, supply chain manage-
ment, logistics, management information systems, and strategic management at
undergraduate, master’s, PhD, and executive MBA levels at different universities
worldwide in English, German, and Russian for more than 20 years. He has given
guest lectures and webinars, presented scholarly papers and has been a visiting
professor at numerous universities in Asia, Europe, and North America. He enjoys
being part of students’ learning experience and creating a safe and active learning
environment. He sees his job as an educator to equip future industry leaders with
working knowledge and skills in management and technology that would shape
more resilient, adaptable, and sustainable supply chains and operations.
His academic background includes industrial engineering and management,
operations research, and applied control theory. He studied industrial engineering
and production management in St. Petersburg and Chemnitz and graduated with
honors. He earned his PhD (Dr.rer.pol.), Doctor of Science (ScD), and Habilita-
tion (Dr. habil.) degrees in 2006 (TU Chemnitz), 2008 (FINEC St. Petersburg), and
2011 (TU Chemnitz), respectively. Prior to becoming an academic, he was mainly
engaged in industry and consulting, especially for process optimization in manufac-
turing and logistics and ERP systems. His practical expertise includes numerous
projects on the application of operations research and process optimization meth-
ods to operations design, logistics, scheduling, and supply chain management.
Prior to joining the Berlin School of Economics and Law, he was professor and
interim chair of operations management at University of Hamburg.
Professor Ivanov’s research makes impact. His papers belong to the most cited
worldwide in the areas of supply chain resilience and digital supply chain. For
example, he has been the most cited author of premier journals International Jour-
nal of Production Research and Transportation Research: Part E in 2020. His
XII Author Bio
research record includes over 350 publications, with over 100 papers in prestigious
academic journals, three editions of the leading textbook Global Supply Chain and
Operations Management, the research books Structural Dynamics and Resilience in
Supply Chain Risk Management and Scheduling in Industry 4.0 and Cloud Manufac-
turing, and Handbook of Ripple Effects in the Supply Chain. Professor Ivanov’s
research has been published in various academic journals, including Annals of
Operations Research, Annual Reviews in Control, Central European Journal of Oper-
ations Research, Computers and Industrial Engineering, European Journal of Opera-
tional Research, Expert Systems with Applications, IEEE Transactions on
Engineering Management, IISE Transactions, International Journal of Information
Management, International Journal of Integrated Supply Management, Interna-
tional Journal of Inventory Research, International Journal of Physical Distribution
& Logistics Management, International Journal of Production Research, Interna-
tional Journal of Production Economics, International Journal of Technology Man-
agement, International Journal of Systems Science, International Transactions in
Operational Research, Journal of Scheduling, Omega, Production Planning and Con-
trol, and Transportation Research: Part E.
He is a recipient of German Chancellor Scholarship Award (2005–2006), Best
Paper Awards of International Journal of Production Research (2018,2019, 2020),
and Commended Paper Award at International Conference LogDynamics (2018).
He is listed in WiWo rankings 2018 and 2020 “The Best Researchers in Business
and Management” in categories TOP 100 and Long-Term Stars. His research proj-
ects have been supported by funding by the European Commission (Horizon 2020),
DFG (German Research Foundation), DAAD, Alexander von Humboldt-
Foundation, as well industrial companies.
Dr. Ivanov is profiled in supply chain and operations management, operations
research and industrial engineering. He delivered invited plenary, keynote, and
panel talks at the conferences of INFORMS, IFPR, DSI, IFAC, and IFIP. He is
passionate about bridging the knowledge of different disciplines and applying it to
solution of practically relevant problems. He is leading working groups, tracks, and
sessions on the digital supply chain, supply chain risk management, and resilience
in global research communities. He is editor of the International Journal of Inte-
grated Supply Management and an associate editor of the International Journal of
Production Research, International Transactions in Operational Research, and Inter-
national Journal of Systems Science. He is an editorial board member as well as
associate and guest-editor in different journals, including Annals of Operations
Research, Annual Reviews in Control, International Journal of Production Econom-
ics, International Journal of Production Research, International Transactions in
Operational Research, International Journal of Integrated Supply Management,
International Journal of Information Management, International Journal of Inven-
tory Research, International Journal of Physical Distribution and Logistics Manage-
ment, International Journal of Systems Science, and Production Journal. He is
chairman of IFAC TC 5.2 “Manufacturing Modelling for Management and Con-
trol” and co-chairman of the IFAC TC 5.2 Working group “Supply Network
Engineering”. He has been member of numerous associations, including CSCMP,
DSI, GOR, INFORMS, POMS, and VHB. He has been general conference chair
XIII
Author Bio
Supply Chain
Risks, Disruptions,
and Ripple Effect
Contents
References – 23
1.1 · Uncertainty and Risk
3 1
.. Fig. 1.1 Supply chain
resilience function
Disruptive Events
Withstand Recover
nnLearning Objectives
In this chapter, we introduce major concepts related to uncertainty and risks in sup-
ply chains. Uncertainty, risks, and the resulting disruptive events are major vulner-
ability drivers in the supply chain which can be balanced and recovered by resilience
capabilities (which we will learn in 7 Chap. 2) if utilized properly (. Fig. 1.1).
To this end, our learning objectives for this chapter are as follows:
55 Understand the notions of uncertainty and risks
55 Classify supply chain disruptions
55 Explain the ripple effect in the supply chain
55 Analyze disruption overlays and disruption tails
55 Explain super-disruptions to supply chains using example of the COVID-19
pandemic
The major concern of supply chain resilience is to enable continuity of firm’s oper-
ations in the presence of uncertainties and disruptions. Decision-making under
uncertainty belongs to the most important areas of resilient supply chain manage-
ment (Klibi et al. 2010; Sodhi and Tang 2012; Ivanov 2018a; Sawik 2020).
Definition
Uncertainty is a system property characterizing the incompleteness of our knowl-
edge about the system, its environment, and the conditions of its development.
4 Chapter 1 · Supply Chain Risks, Disruptions, and Ripple Effect
Risk Uncertainty
initiates from exists in any system
uncertainty; can be with a sensible extent
identified, analyzed, of complexity; can be
controlled and reduced or amplified
regulated; can cause a
disturbance
Disturbance Disruption
results from risk; can results from a
be prevented and distrubance; can
eliminated by means disrupt the supply
of redundancy and chain; can be
flexibility reserves; eliminated by means
can cause a deviation of adaptation
.. Fig. 1.2 Interrelations of uncertainty, risk, disturbance, and disruption (Ivanov 2018a)
1.1 · Uncertainty and Risk
5 1
uncertainty. Risks can be identified, analyzed, controlled, and regulated. We usu-
ally talk about uncertainty factors and the appearance of risks such as the risk of
demand fluctuation as a result of the environmental uncertainty. A disturbance
(perturbation impact) is the consequence of risks. It may be purposeful (i.e., thefts)
and non-purposeful (i.e., demand fluctuations or the occurrence of some events
that may necessitate adapting the supply chain). It may cause a deviation (disrup-
tion) in the supply chain or not (e.g., a supply chain can be robust and adaptive
enough to overcome the disturbance). Operational deviations (e.g., a decrease in fill
rate due to some demand fluctuation) or severe disruptions (e.g., supplier unavail-
ability or market disruption) are the results of perturbation influences. They may
affect operations, processes, plans, network structures, goals, or strategies. To
adjust the supply chain in the case of deviations, adaptation measures need to be
taken.
Analysis of uncertainty impacts on the system can be related to the categories
of stability, robustness, and resilience (. Table 1.1).
In . Table 1.1, we illustrate major commonalities and differences between sta-
bility, robustness, and resilience for supply chain management.
Definition
Stability refers to process control level (e.g., stability of an inventory control policy
(Disney and Towill 2002)) and is considered the ability to return to a pre-distur-
bance state within some pre-determined bounds (i.e., BIBO-stability: bounded
input, bounded output stability (Ivanov and Sokolov 2013; Demirel et al. 2019)).
We talk about stability when short, limited scope shocks cause disturbances in
specific functions of the supply chain (e.g., in an inventory control policy, mani-
festing in a pendulum-like disturbance effect with a relatively rapid and predict-
able return to full normalcy).
Robustness is the ability to withstand a disruption (or a series of disruptions)
to maintain the planned performance (Nair and Vidal 2011; Simchi-Levi et al.
2018) and is considered as a proactive strategy to cope with disruptions (Rosen-
head et al. 1972, Bode and Macdonald 2017; Tan et al. 2019). Thus far, robustness
is the ability of a system to not be disrupted in the first place, i.e., to withstand
disruptions without breaking down, e.g., by stocking inventory or maintaining a
back-up supply base (Tomlin 2006; Wu and Olson 2008; Yang et al. 2009; Tang
et al. 2016).
Like robustness and differently to stability, resilience is a systemic property,
i.e., “a complex, collective, adaptive capability of organizations in the supply net-
work to maintain a dynamic equilibrium, react to and recover from a disruptive event,
and to regain performance by absorbing negative impacts, responding to unexpected
changes, and capitalizing on the knowledge of success or failure” (Yao and Fabbe-
Costas 2018), in line with the studies by Hosseini et al. (2019b) and Zhao et al.
(2019).
6 Chapter 1 · Supply Chain Risks, Disruptions, and Ripple Effect
1 .. Table 1.1 Major analysis concepts for supply chain performance under uncertainty
The concept of risk is subject to various definitions. Knight (1921) classified under
“risk” the “measurable” uncertainty. From the financial perspective of Markowitz
(1952), risk is the variance of return. From a project management perspective, risk
is a measure of the probability and consequence of not achieving a defined project
goal. According to March and Shapira (1987), risk is a product of the probability
of occurrence of a negative event and the resulting amount of damage.
Generally, in decision theory, risk is a measure of the set of possible (negative)
outcomes from a single rational decision and their probabilistic values. In contrast
to risk, uncertainty is a more comprehensive term, considering situations that
cause both positive (chance) and negative (threats) deviations from an expected
outcome.
►►Example
One can compare risks with viruses and resilience with immune systems. Using the
immune system analogy, we can understand a difference between risks and resilience.
Immune system is an inherent property of any human being to absorb negative events,
e.g., a virus. It also helps to recover after an infection. In supply chain terms, risks are
negative events (i.e., a kind of a virus that can cause an infection) and resilience is an
inherent supply chain property responsible to absorb the negative events and restore the
normal operations (i.e., to recover).
We have immune systems in order to withstand different viruses and recovery in case
of illness. In case of some minor viruses (as an analogy to small operational deviations
such as a lead-time fluctuation), only a part or a function of our body is affected (e.g.,
we get some headaches). However, our body as a system is able to keep operating. We
would talk about the stability of supply chains in this case. In case of severe viruses (or
a weak immune system), their impact on our abilities and performances can be much
higher and disrupt our life on the system level. Here, we encounter the questions of
robustness and resilience. A strong immune system helps human beings achieve high
performances. Similarly, the supply chain performance depends on the resilience. A
weak immune system may result in chronic diseases leading to performance degrada-
tion. Low supply chain resilience, if a disruption is experienced, also results in profit-
ability reductions, mismatches of demand and supply, and destabilization of normal
operations. ◄
8 Chapter 1 · Supply Chain Risks, Disruptions, and Ripple Effect
The material flows in supply chains can be vulnerable to disruptions and numerous
risks (Tang 2006; Chopra et al. 2007; Craighead et al. 2007; Ivanov et al. 2017b; He
et al. 2019; Macdonald et al. 2018; Yoon et al. 2018), which yield different types of
supply, production, and logistics disruptions (Sawik 2020).
Risk management in supply chains became one of the most important topics in
research and practice over the last decade. A number of books (e.g., Waters 2011;
Gurnani et al. 2012; Heckmann 2016; Ivanov 2018a) and literature review papers
(Ho et al. 2015; Fahimnia et al. 2015; Gupta et al. 2016; Snyder et al. 2016; Ivanov
et al. 2017b; Dolgui et al. 2018; Bier et al. 2020; Duong and Chong 2020; Pournader
et al. 2020) provide insightful overviews and introductions to different aspects of
this exciting field.
For example, Chopra and Sodhi (2004) divided potential supply chain risks
into nine categories:
55 Disruptions (e.g., natural disasters, terrorism, and war)
55 Delays (e.g., inflexibility of supply source)
55 Systems (e.g., information infrastructure breakdown)
55 Forecast (e.g., inaccurate forecast and bullwhip effect)
55 Intellectual property (e.g. vertical integration),
55 Procurement (e.g., exchange rate risk)
55 Receivables (e.g., number of customers)
55 Inventory (e.g., inventory holding cost, and demand and supply uncertainty)
55 Capacity (e.g., cost of capacity)
Quang and Hara (2017) classify the following seven groups of risks:
55 External risks that “deal with threats from an external perspective of supply
chain that can be caused by economical, sociopolitical or geographical reasons.
Examples are fire accidents, natural catastrophes, economic downturn, external
legal issues, corruption, and cultural differentiation.”
55 Time risks referring to delays in supply chain processes.
55 Information risks, e.g., communication breakdown within the project team,
information infrastructure complications, distorted information, and informa-
tion leaks.
55 Financial risks, e.g., inflation, interest rate level, currency fluctuations, and
stakeholder requests.
55 Supply risks, i.e., risks related to suppliers, e.g., supplier bankruptcy, price
fluctuations, unstable quality, and quantity of inputs.
55 Operational risks caused by problems within the organizational boundaries of
a firm, e.g., changes in design and technology, accidents, and labor disputes.
55 Demand risks that refers to demand variability, high market competition, cus-
tomer bankruptcy, and customer fragmentation.
1.2 · Disruption Risks in Supply Chains
9 1
Tang (2006) distinguishes operational risks (e.g., uncertain costs and uncertain
demand) and disruption risks (e.g., natural and man-made disasters or general
crises). Rao and Goldsby (2009) classify risks into environmental, industry, organi-
zational, problem-specific, and decision-maker related factors. Christopher (2011)
divides the supply chain risks into five groups: supply, demand, process, control,
and environmental risks. Ho et al. (2015) classify macro, demand, manufacturing,
supply, and infrastructural risk factors. Shen and Li (2017) offer a classification of
market disruptions in supply chains.
Another classification of supply chain risks has been proposed by Ivanov and
Dolgui (2019) and is as follows:
55 Network risks: risks imposed by specific types of supply chain networks (e.g.,
scale-free vs decentralized networks).
55 Process risks: specific parameters of supply chain processes such as inventory
and capacity may influence supply chain proneness to disruptions.
55 Supplier risks: risks induced by specific suppliers, e.g., those located in geo-
graphical zones with high probability of natural disasters.
In . Fig. 1.3, we present our classification of supply chain risks based on the
works by Chopra and Sodhi (2004), Tang (2006), Tang and Musa (2011), Ho et al.
(2015), and Quang and Hara (2017).
Supply chain risks stem from different areas related to material flows such as
supply, demand, production, and logistics process. Along with material flow-
related risks, risks arise in financial and information flows, e.g., due to cyber-attacks
or financial crisis (Sawik 2021; Ghadge et al. 2019; Linkov and Kott 2019).
Moreover, supply chains are subject to macro-risks such as climate changes and
shortages of critical resources.
►►Example
1 Practical insights. SC risks are highly intertwined and can induce each other. Consider
an example based on Manager Magazine (2021). In January 2021, production stops at
automotive assembly plants have been observed due to the supply shortages of semi-
conductors. The shortages were caused by surges in demand at automotive firms that
recovered after the pandemic shock in 2020. However, this fast demand recovery was
not well anticipated by semiconductor suppliers, which have reduced or reallocated their
capacities by cooperating electronics industry and healthcare SCs in order to substitute
the missing demand from automotive industry which suffered from severe shocks in the
wake of the COVID-19 pandemic. On the other hand, silicon as a raw material for semi-
conductor industry is associated with high sourcing risks. Silicon production has been
reduced in China in 2020 due to the shortages of electricity generated by hydropower
stations, which in turn were caused by long periods of drought. This example illustrates
interconnections between different SC risks shown in . Fig. 1.3.
Reference:
Manager Magazine (2021) ◄
From the perspective of impact severity, different types of risks in the supply chain
can be classified into areas of demand, supply, process, and structure entailing a
generalized separation in operational and disruption risks, also referred to as LIHF
(low-impact, high frequency) and HILF (high-impact, low-frequency) risks (see
. Fig. 1.4).
LIHF risks of demand and supply uncertainty are related to random uncer-
tainty and business-as-usual situation. Such risks are also known as recurrent or
operational risks (Tang 2006; Chopra et al. 2007). Supply chain managers achieved
significant improvements at managing global supply chains and mitigating recur-
rent supply chain risks through improved planning and execution. However, dis-
Supply Chain
Risks
Structural Lean
complexity and structures and
connectivity processes
Definition
Disruption is an unexpected event that interrupts the normal flow of goods and
materials in a supply chain network and has a severe negative impact on supply
chain operations and performance.
►►Example
For example, as a result of the tsunami and earthquake that struck Japan in 2011,
Toyota’s parts suppliers were unable to deliver parts at the expected volume and time
(Marsh et al. 2011). This forced Toyota to halt production for several weeks. Similarly,
General Motors was forced to stop production because of a shortage of raw materials
from their Japanese suppliers (Huffington Post 2015). Nissan suffered significant set-
12 Chapter 1 · Supply Chain Risks, Disruptions, and Ripple Effect
backs: the company had a high level of dependency on raw materials from suppliers who
1 were located in the tsunami and earthquake zone and supplied 12% of Nissan’s engines
(BBC News 2011). Nissan had to temporarily shut down production at its Sunderland
UK plant. ◄
Disruption risks may adversely affect supply chains because of several reasons.
First, globalization and outsourcing make supply chains more complex and less
observable and controllable. According to complexity theory, such systems become
more sensitive to disruptions. Second, the efficiency paradigms of lean processes
(e.g., single sourcing or just-in-time sourcing) can entail an increased proneness to
disruptions due to missing structural and process variety. As a consequence, supply
chains became more vulnerable. Disruptions in a global supply chain, especially in
its supply base, may immediately affect the entire supply chain. Third, with
increased specialization and geographical concentration of manufacturing, disrup-
tions in one or several nodes affect almost all the nodes and links in the supply
chain.
>>Important Observation
Disruptions at the tier-1 suppliers have an immediate impact on the OEM (origi-
nal equipment manufacturer). As such, risky tier-1 suppliers should be identified
very carefully. At the same time, a disruption at a tier-N supplier, even at a smaller
one, can have devastating impacts comparable with a tier-1 disruption. As such, the
search for and identification of such “hidden” suppliers is of an utmost importance
(Simchi-Levi et al. 2015; Yan et al. 2015).
Disruption risks are characterized by a very strong and immediate impact on the
supply chains since some factories, suppliers, warehouses, and transportation links
become temporarily unavailable. Adversely, the resulting material shortages and
delivery delays propagate downstream the supply chain, causing the ripple effect
and performance degradation in terms of revenue, service level, and productivity
decreases (Ivanov et al. 2014a, 2014b; Garvey et al. 2015; Sokolov et al. 2016;
Dolgui et al. 2018; Cao et al. 2019; Ivanov et al. 2019b; Pavlov et al. 2019; Dolgui
et al. 2020; Goldbeck et al. 2020; Li and Zobel 2020; Gholami-Zanjani et al. 2020).
We refer readers to the works by Ho et al. (2015), Fahimnia et al. (2015), Heckmann
et al. (2016), Ivanov and Dolgui (2019), and Xu et al. (2020) for comprehensive
reviews of definitions and core characteristics of supply chain risks.
>>Important Observation
Risks are the vulnerabilities that should be balanced and recovered by supply chain
resilience management. To this end, resilience management is different as risk man-
agement. Supply chain risk management is rooted in an event-oriented perspec-
tive while supply chain resilience is a system property. One can compare risks with
viruses and resilience with immune systems.
In . Table 1.2, some examples of disruptions in supply chains in recent years are
presented.
1.2 · Disruption Risks in Supply Chains
13 1
Terrorism September 11, 2001 Five Ford plants have been closed for a long time
Piracy Somali, 2008 Disruptions in many supply chains
Natural Earthquake in Thailand, Apple computers’ production in Asia has been
disasters 1999 paralyzed
Flood in Saxony, 2002 Significant production decrease at VW, Dresden
Earthquake in Japan, 2007 Production breakdown in Toyota’s supply chains
amounted to 55,000 cars
Hurricane Katrina, USA, This storm halted 10–15% of total US gasoline
2006 production, raising both domestic and overseas
oil prices
Earthquake and tsunami Massive collapses in global automotive and
in Japan, 2011 electronics supply chains; Toyota lost its market
leadership position
Floods in Chennai, India, Production of academic literature has been
in 2015 stopped at many international publishing houses
Man-made Explosion at BASF plant 15% of raw materials were missing for the entire
disasters in Ludwigshafen in 2016 supply chain
Production of some products at BASF has been
stopped for many weeks
Transportation disruption Many ripple effects in global supply chains due to
in Suez Canal in March delayed deliveries and destabilization of the
2021 global shipment schedules
A fire in the Phillips Phillips’s major customer, Ericsson, lost $400
Semiconductor plant in million in potential revenue
Albuquerque, New
Mexico, in 2000
Political “Gas” crisis 2009 Disruptions in gas supply from Russia to Europe,
crises billions of losses to GAZPROM and customers
Financial Autumn 2008 Business bankruptcies; interruptions in supply
crises chains all over the world
Strikes Strikes at Hyundai plants Production of 130,000 cars has been affected
in 2016
Legal Volkswagen and Prevent Six German factories face production halt on
contract Group contract dispute in parts shortage; 27,700 workers were affected, with
disputes summer 2016 some sent home and others moved to short-time
working
Epidemics COVID-19 global Worldwide disruptions in supply and demand,
and pandemic in 2020–2021 devastating effects in many global and local supply
pandemics chains; ripple effects; supply chain collapses and
long-term performance degradation
The ripple effect occurs when a disruption, rather than remaining localized or
being contained to one part of the supply chain, cascades downstream and impacts
the performance of the entire supply chain (Dolgui et al. 2018). Ripple effect is fol-
lowed by supply chain structural dynamics (Ivanov 2018a) and its impact might
include lower revenues, delivery delays, loss of market share and reputation, etc.,
with adverse effects on the profitability of supply chain (Li et al. 2020, 2021;
Llaguno et al. 2021).
Definition
Ripple effect describes the disruption propagation in the supply chain network
entailing unavailability of components at different echelons and an associated
performance degradation.
According to Dolgui et al. (2020), the ripple effect “refers to structural dynamics
and describes a downstream propagation of the downscaling in demand fulfilment in
the supply chain as a result of a severe disruption.” Ivanov et al. (2014b) state that
the “ripple effect describes the impact of a disruption on supply chain performance
and disruption-based scope of changes in the supply chain structures and parameters.”
These definitions imply that the ripple effect refers to multi-stage networks and
triggering failures in the network elements as a domino or cascading effect.
Between 2010 and 2014, first studies appeared in the area of the ripple effect,
along with an increased interest in disruption propagation and correlated disrup-
tions (Liberatore et al. 2012; Chatfield et al. 2013; Ghadge et al. 2013; Ivanov et al.
2014a). The first explicit definition of the ripple effect has been undertaken by
Ivanov et al. (2014b) as indicated above. Thus far, much progress has been made in
the area deploying different methodologies and obtaining relevant managerial out-
comes and recommendations (Fiksel et al. 2015; Van der Vegt et al. 2015; Chaudhuri
et al. 2016; Scheibe and Blackhurst 2018). Dolgui et al. (2018) and Ivanov and
Dolgui (2020, 2021) presented overviews of the ripple effect in supply chains.
1.3 · Ripple Effect in Supply Chains
15 1
Studies on the ripple effects in supply chains have been collated in 2019 in a hand-
book of ripple effects in supply chains (Ivanov et al. 2019b). The recent works on
the ripple effect are multi-faceted and cover the areas of network analysis, design,
planning, and control.
►►Example
Consider some examples of the ripple effects. Earthquake and tsunami in Japan in 2011
have disrupted multiple suppliers in the automotive industry and led to production
breaks and material shortages worldwide leading to numerous ripple effects in global
supply chains (Ivanov 2018a). In May 2017, production at BMW was disrupted as a
consequence of a supply shortage of steering gears. BMW’s first tier supplier, Bosch,
was unable to deliver the steering gears since an Italian second tier supplier experienced
production delays for certain steering parts due to internal machine breakdowns (Moetz
et al. 2019; Dolgui and Ivanov 2021). The COVID-19 pandemic has caused numer-
ous ripple effects. Haren and Simchi-Levi (2020) observed two examples of a ripple
effect triggered by COVID-19 immediately after the epidemic outbreak. Fiat Chrysler
Automobiles NV halted production at a car factory in Serbia in response to being unable
to receive parts from China. As Hyundai stated, it had “decided to suspend its produc-
tion lines from operating at its plants in Korea … due to disruptions in the supply of
parts resulting from the coronavirus outbreak in China.” Further ripple effects have
been encountered in the wake of the COVID-19 pandemic, driven by the closures of
manufacturing facilities, stores, and logistics activities, and adversely affecting almost all
industries and services worldwide (Ivanov and Dolgui 2021).
In another example, a transportation disruption in Suez Canal in March 2021
resulted in numerous arrival delays and congestions at international ports leading to
longer lead times. As a consequence, suppliers and manufacturers suffered from mate-
rial shortages which led to an increase in backlogged demands at customers. Moreover,
global transportation shipment schedules have been destabilized. ◄
>>Important Observation
Detection and mitigation of the ripple effect can be improved by supply chain vis-
ibility. It is of crucial importance to observe the supply chain network beyond the
tier-1 suppliers.
With the ripple effect, a complex setting should be considered comprising a disrup-
tion (or a set of disruptions) and their propagations, analysis of impact of the
disruption propagation on operational and strategic economic performance, and
deployment of stabilization and recovery policies (. Fig. 1.5).
Ripple effects belong to reality of many supply chains. In many practical set-
tings, supply chain disruptions go beyond the disrupted stage; i.e., the original dis-
ruption causes disruption propagation in the supply chain, and at times still higher
consequences are caused (. Fig. 1.6).
>>Important Observation
The ripple effect describes disruption propagation in the supply chain, impact of a
disruption on supply chain performance, and disruption-based scope of changes in
supply chain structures and parameters.
16 Chapter 1 · Supply Chain Risks, Disruptions, and Ripple Effect
Following a disruption, its effect ripples through the supply chain (Basole and
Bellamy 2014). The missing capacities or inventory at the disrupted facility may
cause missing materials and production decrease at the next stages in the supply
chain. Should the supply chain remain in the disruption mode longer than some
critical period of time (i.e., time-to-survive (Simchi-Levi et al. 2015)), critical per-
formance indicators such as sales or stock returns may be affected.
1.3 · Ripple Effect in Supply Chains
17 1
.. Fig. 1.6 Disruption propagation in the supply chain (Ivanov et al. 2021)
The reasons for ripple effect are not difficult to find. With increasing complexity
and consequent pressure on speed and efficiency, the globalized and lean supply
chains are particularly exposed to rippling and its impact on economic perfor-
mance. The scope and scale of the ripple effect depend both on redundancy (e.g.,
inventory or capacity buffers) and effectiveness of recovery measures (Gupta et al.
2021; Ivanov 2021; Ivanov et al. 2019a).
Therefore, contingency plans (e.g., alternative suppliers or shipping routes)
should be prepared and quickly deployed to expedite stabilization and recovery in
order to ensure continuity of supply and avoid long-term impacts. In implementing
such recovery policies, companies need a tool supported by collaboration and end-
to-end supply chain visibility for assessing the disruption impact on the supply
chain as well as the recovery effects and costs.
. Figure 1.7 and . Table 1.3 summarize the reasons and countermeasures for
the ripple effect (Ivanov and Rozhkov 2020; Dolgui et al. 2018; Ivanov 2018a).
18 Chapter 1 · Supply Chain Risks, Disruptions, and Ripple Effect
.. Table 1.3 Reasons and countermeasures for ripple effect (Dolgui et al. 2018)
Several works (Ivanov 2019; Dolgui et al. 2020; Ivanov and Rozhkov 2020) have
observed that non-coordinated ordering and production policies during a disrup-
tion period may result in backlog and delayed orders, the accumulation of which
causes post-disruption supply chain instability, resulting in further delivery delays
and non-recovery of supply chain performance. These residues have been named
“disruption tails.” The extant literature suggests that specific “revival” policies must
be developed for the transition from the recovery to disruption-free operation
mode to avoid these “disruption tails.”
On another note, there are interrelations of structural and operational vulner-
abilities in the supply chain – the so-called disruption overlays.
Definition
A disruption overlay is an effect of intersecting operational and disruption risks
leading to their mutual impact on each other and amplifying/dampening disrup-
tion propagations.
►►Example
Nearly 94% of the Fortune 1000 companies have been affected by coronavirus-driven
supply chain disruptions in February 2020 (Fortune 2020). Supply chains have seen
unprecedented vulnerabilities in lead times and order quantities, disruptions in net-
works structures, and severe demand fluctuations. A survey by ISM (Institute of Supply
Management) (data for mid of April 2020) revealed that average lead times in sup-
ply chains increased by about 200% as compared to “normal” operations; moreover,
Chinese and European manufacturing rates were at about one-half normal capacity,
53% and 50%, respectively. ◄
The COVID-19 pandemic has imposed a new disruption context unlike any seen
before. At the pandemic times, for some supply chains, demand has drastically
increased and the supply was not able to cope with that situation (e.g., facial masks,
hand sanitizer, disinfection spray). As such, the question of market and society
survivability was raised. For other supply chains, the demand and supply have
drastically dropped resulting in the production stops (e.g., automotive industry),
the danger of bankruptcies, and necessities of governmental supports. Here, the
questions of supply chain survivability again arose.
The pandemic context can be described as a supply chain crisis subject to the
following characteristics:
55 Long-lasting crisis with hardly predictable scaling and uncertainty about both
short-term and long-term future in the supply chain and its environment, i.e., a
deep uncertainty (unknown-unknown)
55 Simultaneous disruptions in supply, demand, and logistics
55 Recovery is performed in the presence of a disruption and its hardly predictable
scaling (i.e., coupling of supply chain and disruption dynamics)
55 Simultaneous and/or sequential openings and closures of suppliers, facilities
and markets
55 Response and recovery strategies taking potential crisis recurrence and setbacks
into consideration
55 Cascading effects of disruptions through the supply chain networks (i.e., the
ripple effect).
The pandemic represents as specific type of disruption risks, i.e., a super disruption
that is characterized by four major aspects that differentiate the pandemic disrup-
tion from all other “instantaneous” (i.e., an event of an immediate impact) disrup-
tions as shown in . Table 1.4 (Choi 2020; Ivanov 2020b, c; Ivanov and Dolgui
2020, 2021; Ivanov and Das 2020). With the COVID-19 pandemic, some novel
1.4 · Super Disruptions and Supply Chain Crises…
21 1
.. Table 1.4 Instantaneous supply chain disruptions and super disruptions (supply chain
crises)
context has been unveiled which goes beyond an instantaneous event-driven under-
standing and can be described as a supply chain crisis subject to some specific
characteristics.
►►Definition
Supply chain crisis is a long-term disrupted state that is characterized by unstable cur-
rent situation and uncertainty of future developments in the markets, supply base, and
capacities entailing a danger of supply chain collapses and interruption of market provi-
sion with goods and services. ◄
In this chapter, disruption risks have been introduced as major vulnerability for
supply chain networks. Fundamentally, there are four important categories that
need to be analyzed in this domain, i.e., uncertainty, risk, disturbance, and disrup-
tion.
55 Can you explain how these four elements are mutually connected?
55 Can you summarize major differences and similarities related to stability,
robustness, and resilience?
55 Can you summarize uncertainty factors and the corresponding handling
measures?
55 Can you explain different supply chain risks?
We have seen that demand, globalization, lead-time, and lean supply chains can be
considered as reasons for risks in supply chains. Explain why we should care of
risks in our supply chains?
Supply chains are exposed to recurrent operational risks and exceptional dis-
ruption risks. Summarize in your own words factors relevant to disruption risks
and explain the ripple effect providing some examples.
55 Where does information coordination help, and when would you suggest build-
ing up inventory buffers?
55 Is an explosion of a factory an operational or a disruptive risk?
55 What are low-frequency, high-impact risks? Are these operational or disruptive
risks?
55 What are high-frequency, low-impact risks? Are these operational or disruptive
risks?
55 What are consequences of the ripple effect that can be diagnosed in reduced
supply chain performance?
55 What differences can you see between singular disruptions and the ripple effect?
55 Can you explain the notions of “disruption overlays” and “disruption tails”?
The COVID-19 pandemic has shed light on a novel context of supply chain disrup-
tions entailing the notion of supply chain crisis.
55 What is the difference between an instantaneous disruption and supply chain
crisis?
55 How the firms can prepare for and manage supply chain crises?
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23 1
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29 2
Managing Supply
Chain Resilience
Contents
2.8 Discussion – 55
References – 55
2.1 · Historical Development
31 2
nnLearning Objectives
In this chapter, we introduce the major concepts related to resilience management in
supply chains. We explain how to build and use resilience for supply chain recovery.
To this end, our learning objectives for this chapter are as follows:
55 Understand supply chain resilience and its strategic importance
55 Explain design and usage of resilience capabilities
55 Analyze resilience capacity concept
55 Decide on the trade-off resilience vs. efficiency
55 Illustrate supply chain resilience issues in the context of a super-disruption on
the example of the COVID-19 pandemic
Definition
Supply chain resilience is the “ability to maintain, execute and recover (adapt)
planned execution along with achievement of the planned (or adapted, but yet still
acceptable) performance” (Ivanov 2018a). According to Hosseini et al. (2019),
supply chain resilience is “the firm’s capability to withstand, adapt, and recover
from disruptions to meet customer demand, ensure target performance, and maintain
operations in vulnerable environments.”
Foundations of supply chain resilience literature were developed in the first decade
of 2000s. The works by Rice and Caniato (2003), Christopher and Peck (2004),
Blackhurst et al. (2005), Sheffi (2005), Wagner and Bode (2008), Ponomarov and
Holcomb (2009), Pettit et al. (2010), Jüttner and Maklan (2011), Bode et al. (2011),
Blackhurst et al. (2011) provided major definitions that have been rooted in and
motivated by a number of crucial supply chain disruptions at the beginning of the
twenty-first century. Ivanov (2018a, p. 23) presented a historical overview of severe
supply chain disruptions classifying them in natural disasters (e.g., tsunamis), man-
made disruptions (e.g., fire or strike), and financial disruptions (e.g., financial crisis
or bankruptcy). These events have been considered as severe disruption risks in con-
trast to more “light” operational risks such as demand fluctuations or delivery delays.
The works by Brandon-Jones et al. (2014), Melnyk et al. (2014), Scholten and
Schilder (2015), Ambulkar et al. (2015), and Chowdhury and Quaddus (2017)
extended supply chain resilience literature in relation to collaboration, agility, and
adaptability. Modeling and simulation studies for resilient supplier selection
(Silbermayr and Minner 2014; Torabi et al. 2015; Sawik 2011, 2013, 2019; Behzadi
et al. 2017, 2018; Hosseini et al. 2019b), resilient supply chain design (Klibi et al. 2010;
Losada et al. 2012; Khalili et al. 2016; Yildiz et al. 2016; Azaron et al. 2020), supply
chain recovery (Lücker and Seifert 2017; Lücker et al. 2020; Paul and Rahman 2018;
Ivanov et al. 2016b), and network theory (Li and Zobel 2020; Chauhan et al. 2021)
have extensively dealt with network, process, and supplier resilience analysis.
32 Chapter 2 · Managing Supply Chain Resilience
Ivanov et al. (2021) consider resilience as a major component of supply chain strat-
egies. In particular, they position the notions of design-for-efficiency and design-
for-resilience as follows.
2.2 · Strategic Understanding of Supply Chain Resilience
33 2
Definition
Design-for-efficiency: efficient and responsive supply chains and operations are
coined by lean and agile principles. The key idea of such leagile operations and
supply chain designs is to utilize the available resources (i.e., material, time, capi-
tal, technology, and workforce) at the highest possible degree of efficiency to avoid
waste and maximize p rofitability.
Design-for-resilience: resilient supply chain and operations are designed to
absorb unexpected, severe disruptions (e.g., natural disasters, fires at facilities,
strikes, or pandemic outbreaks) and restore operations thereafter. Resilience helps
mitigate the impact of disruptions using some redundancy (e.g., inventory, capac-
ity buffers, or back-up suppliers) and recover to an original or even better perfor-
mance later.
►►Example
In practice, firms should target an integrated system that combines elements of efficiency,
resilience, and responsiveness. For example, PepsiCo has developed a global supply chain
for beverages using coconut water. To utilize the advantages of efficiency, PepsiCo has
selected primary suppliers and manufacturers in Southeast Asia. To increase resilience
in light of frequent natural disasters in this geographical region, PepsiCo established
34 Chapter 2 · Managing Supply Chain Resilience
Recall that supply chain resilience is the “ability to maintain, execute and recover
(adapt) planned execution along with achievement of the planned (or adapted, but
yet still acceptable) performance is therefore the next objective property of the sup-
ply chain” (Ivanov 2018a). Consider . Fig. 2.1 as an illustration.
Supply chain resilience looks at maintaining some desired performance despite
disruptions. Using some proactive capabilities (i.e., inventory), a supply chain can
absorb negative disruption impacts (e.g., supply unavailability) without perfor-
mance degradation. However, if proactive capabilities do not help, performance
(e.g., on-time delivery or revenue) can decline. In this case, reactive capabilities
should be employed to restore the performance and operations. This takes time
and creates costs. Thus far, building a resilient supply chain is based on mitigating
risks, preparedness for disruptions, stabilization, and recovery (see . Fig. 2.2).
Disruption
Performance
Recovered
performance
time for recovery
0 Time
Resilience
Resistance Recovery
Pre-disruption Post-disruption
A special focus of supply chain management at Toyota is risk and disruption man-
2 agement (Toyota 2021). Many parts of the Toyota’s supply chain are located in areas
that are likely to be hit by an earthquake (Marsh et al. 2011). As such, the risk that
Toyota’s supply chain might suffer from those disasters is rising, and the damage
could severely impact production and other activities. Given this context, one can
assume that Toyota would suffer greatly from such a disaster and so should make
preparations to affect early recovery. For these reasons, Toyota reassessed its busi-
ness continuity plan. The foremost premise of Toyota’s business continuity plan is to
work on preparedness before and recovery after disaster happens.
Learning from previous experiences, Toyota has prepared a nationwide frame-
work that utilizes the warehouses and logistics network throughout Japan for send-
ing relief supplies to disaster-affected areas. In addition to stocking emergency
supplies at the distributors nationwide, Toyota has also built a framework for send-
ing relief supplies to the disaster-affected distributors. Taking into consideration
possible problems such as motor fuel shortages, this framework is important for
delivering quick and reliable support to disaster-affected sites.
The risk management committee at Toyota organizes meetings twice a year to
identify risks that may affect business activities and to take preventative actions
against the negative impacts of those risks. The committee members include the
global chief risk officer (CRC), regional CRSs, and all senior managers and chief
officers. They work to manage and prevent the major risks in the regions and report
on any immediate and serious disruptions.
Toyota also has invested in new capabilities to improve supply chain resilience.
Working with its partners, the company created a database to visualize supply net-
works for each component. If disaster strikes, Toyota can immediately identify the
network at risk. The database identifies components that are supplied by only one
manufacturer and are difficult to replace. The company then decreases dependence
on solo providers by reducing the number of unique designs and sharing equipment
specifications with parts production facilities and suppliers.
Discussion
55 What are the main decisions involved with disruption management?
55 Why is it risky to rely on single sourcing when considering the tier-1 suppliers?
55 How can we prepare a supply chain for maintaining business continuity in a case
of disruptions?
55 What digital technologies can help in resilience improvement?
Sources:
Marsh et al. (2011)
Toyota (2021)
2.4 · Resilience Capabilities and Recovery Strategies
37 2
Vulnerabilities (V)
Unbalanced High V &
Excessive risk
Low C
A
C Balanced Portfolio of C
Resilience matched to the pattern Improved performance
of V
B
Unbalanced Low V &
Improved performance
High C
Capabilities (C)
.. Fig. 2.3 Balancing vulnerabilities and capabilities (based on Pettit et al. 2010)
• Identify • Quantify
2 Risk KPIs
Network risks
Resilience
Process risks KPIs
Supplier risks
Ripple effect
KPIs
Contingency Inventory
plans
Agile
Recovery capacity
strategies
Backup
Adaptability facilites
• Respond • Mitigate
>>Important Observation
Supply chain resilience is based on proactive planning of some preparedness mea-
sures (e.g., backup suppliers and risk mitigation inventory) and reactive measures
(i.e., deployment of contingency plans) to recover in case of disruptions.
In . Table 2.2, we summarize some of the existing views on proactive and reac-
tive resilience capabilities in the supply chain.
. Figure 2.5 provides an illustration of major resilience capabilities.
Supply chain resilience capabilities can be classified into two groups: redun-
dancy and adaptation. In redundancy, different reserves (material inventory, capac-
ities, and network design redundancy) as well as facility fortification can be named.
For example, Lücker and Seifert (2017), Lücker et al. (2020), and analyzed the
issues of risk mitigation inventory and reserve capacity on supply chain resilience.
The redundancies are intended to protect the supply chain against disruptions
based on certain reserves. This issue is related to the supply chain robustness.
►►Example
Many companies invest in structural redundancy (e.g., Toyota extends its supply chain
subject to multiple sourcing and building new facilities on the supply side). ◄
Supply chain adaptation has four major dimensions: scalability (e.g., online retail-
ers used capacity expansions for coping with surges in demand during the COVID-
19 pandemic), process flexibility (e.g., auto manufacturers re-purposed their
2.4 · Resilience Capabilities and Recovery Strategies
39 2
>>Important Observation
Backup suppliers belong to standard resilience capabilities. While this approach is
relatively easy to implement for the tier-1 suppliers, it might become difficult for
firms to find appropriate backups at the tier-2/tier3 levels due to insufficient vis-
ibility and expertise. Therefore, in some cases, it can be preferable to have a strategic
relationship with a single supplier and invest in recovering from disruption when
40 Chapter 2 · Managing Supply Chain Resilience
Redundancy Adaptation
2 Ecosystem Intertwining
.. Fig. 2.6 Supply chain resilience capabilities (Ivanov and Dolgui 2019)
Robustness Agility
►►Example
Businesses have taken steps to strengthen the resilience of their global supply chains
to risks posed by natural or industrial HILF events, for example, Hurricane Katrina
in 2005, the earthquake and tsunami in Japan in 2011, and an explosion at the BASF
plant in 2016. Supply chain resilience has been fortified by investments in risk miti-
gation inventories; subcontracting capacities; backup supply and transportation infra-
structures; and data-driven, real-time monitoring and visibility systems. For example,
following Schmidt and Simchi-Levi (2013), Nissan has developed a supply chain resil-
ience program that encompasses supply chain monitoring and visibility, geographic
supply diversification, and flexible reallocation of demand and supply in the case of
disruptions. Toyota has invested in new capabilities to improve supply chain resilience.
Working with its partners, the company created a database to visualize supply networks
for each component. If disaster strikes, Toyota can immediately identify the parts at risk.
42 Chapter 2 · Managing Supply Chain Resilience
The database identifies components that are supplied by only one manufacturer and
are difficult to replace. The company then decreases dependence on solo providers by
reducing the number of unique designs and sharing equipment specifications with parts
2 production facilities and suppliers. ◄
7 http://autonews.com/article/20180730/OEM10/180739995/&template=print&n
ocache=1
Once a supplier makes the cut, BMW is committed to the relationship for the long
haul, Murat Aksel said (BMW Americas vice president for purchasing and supplier
network). “When they become a supplier, then they are with us on the boat,” even in
rough waters, he said. That trust was evident after a fire in May 2018 ripped through
a Meridian Magnesium Products of America factory in Eaton Rapids, Michigan. The
fire brought auto assembly lines around the country to a halt, affecting Ford Motor
Co., General Motors, Fiat Chrysler Automobiles, Mercedes-Benz, and BMW.
The Meridian factory produces instrument panel crossbeams – a structurally
important part on which a vehicle’s instrument panel is mounted. “It was not an easy
part to source,” Aksel said. “We were threatened with not getting parts because
machines were down, tools were broken.” BMW moved swiftly, flying 20 employees
from its Landshut, Germany, foundry where the automaker produces castings for its
manufacturing plants worldwide. Working with the supplier, the BMW foundry
workers located and extracted the affected machining tools and had them trans-
ported to a different supplier – Shiloh Industries in Clarksville, Tennessee. Line
workers from BMW’s Spartanburg, SC, plant helped to get the production of the
affected part started in the Tennessee plant.
The in-house experience and decisive action had bottom-line consequences.
BMW did not reveal how many units of vehicle production it lost, but the auto-
maker said the total was “very low.” “We had people who knew exactly how the tool
and the equipment worked and how to set it up quickly,” said Aksel. The coopera-
tion BMW received was a result of trust, Aksel said. Meridian helped the automaker
extract the tooling equipment from its fire-damaged site, and then Shiloh made its
plant available for production.
Resilience capacity principles have been adopted to analyze supply chain resilience
by Hosseini et al. (2019b, 2020b). We discuss them now and start our explanation
with . Fig. 2.7.
►►Example
For example, PepsiCo uses a backup packing plant in the United States and carries a
risk mitigation inventory to cope with the disruptions in coconut water supply from
South Asia (HBS 2017). ◄
Disruptive events
Resilience capacity
.. Fig. 2.7 Resilience capacity of supply chains with three lines of defense
44 Chapter 2 · Managing Supply Chain Resilience
In some case, absorptive capacity can help to withstand the disruptions. In other
2 cases, the supply chain needs to be adapted to cope with disruptions (Ivanov 2010;
Ivanov and Sokolov 2013). Adaptive capacity can be considered the second line of
defense against disruptions. It refers to the supply chain capability to adapt during
the disruption and recovery periods.
►►Example
For example, in a supply chain, contracts with backup suppliers can enable adaptive
production capacity at a manufacturing facility when the original supplier is disrupted
and inventory is exhausted. ◄
Restorative capacity, or the third line of defense, refers to the supply chain capa-
bility to restore some facilities on the physical level. For example, after sever
earthquakes and tsunamis, buildings of factories and suppliers can be physically
destroyed, and people can also be affected. The restoration of the supply chain
facilities, technological processes, and workers belong to this third line of defense.
Resilience design and management can be costly but the missing resilience can
result in much higher losses if a supply chain is hit by disruptions. This trade-off
presents a central issue in resilience management. High inventory, capacity reserva-
tions, and lead time reserves may not only help in increasing supply chain resil-
ience, but they can also negatively influence supply chain efficiency (Aldrighetti et
al. 2021).
>>Important Observation
Resilience can be expensive. Missing resilience can be fatal and entail supply chain
collapses.
Daily Daily
Factory Warehouse Retailer
shipments shipments
Capacity 100 Risk Mitigation
units per day Inventory 700 units
Performance
Examples:
– Annual sales
– Service level
– On-time delivery
7 14 21 28 35 42 Time (days)
ered as robustness drivers. This is quite natural since both robustness and flexibility
serve as “uncertainty cushions” of a supply chain. Balancing the elements of flex-
ibility and robustness at proactive and reactive control loops, different constella-
tions of service level, costs, and resilience can be analyzed (. Fig. 2.12).
. Figure 2.12 depicts an example of a typical multi-objective analysis with
regard to different proactive and reactive policies. We are interested in investigat-
ing the impacts of different combinations of disruptions (i.e., two scenarios in
. Fig. 2.12), proactive mitigation strategies, and reactive recovery policies (A,
B, C, and D) on the supply chain performance in form of service level and costs.
The combinations of proactive mitigation strategies and reactive recovery poli-
cies (e.g., A – higher risk mitigation inventory and B – a back-up facility) may
differ in costs and service-level impacts for different disruption scenarios. The
task of quantitative analysis methods is to decide on what proactive and reactive
policies need to be selected. In further chapters of this book, we will consider
recent literature advancements and describe our own developments in this
research field.
2.6 · Costs and Value of Supply Chain Resilience
47 2
b
Daily Daily
Factory Warehouse Retailer
shipments shipments
Capacity 100 Risk Mitigation
units per day Inventory 700 units
7 14 21 28 35 42 Time (days)
.. Fig. 2.9 Supply chain with a proactive policy (risk mitigation inventory) (Ivanov 2018a)
a
Order of 100 units per day
Daily Daily
Factory Warehouse Retailer
shipments shipments
Capacity 100 Risk Mitigation
units per day Inventory 700 units
7 14 21 28 35 42 Time (days)
The ultimate objective of the LCN supply chain design is to develop the ability to
operate according to planned performance regardless of environmental changes.
As such, the LCN supply chain design possesses two critical capabilities:
55 Low need for uncertainty consideration in planning decisions
55 Low need for recovery coordination efforts
>>Important Observation
LCN framework constitutes a novel approach to managing supply chain resilience in
an efficient manner. The main idea is to actively maintain efficient and agile “ready-
to-change” supply chain states in dynamics rather than pre-designing some static and
costly “ready-to-absorb,” passive redundancies. Building some actively used redun-
dant functions with a flexible use may help improve resilience better than anticipat-
ing disruptions.
2.6 · Costs and Value of Supply Chain Resilience
49 2
b
Order of 100 units per day
Capacity 100
units per day
Back-up
factory
7 14 21 28 35 42 Time (days)
.. Fig. 2.11 Supply chain with a proactive policy (back-up facility) (Ivanov 2018a)
Costs Costs
.. Fig. 2.12 Efficiency vs effectiveness trade-off in supply chain resilience management (Ivanov
2018a)
50 Chapter 2 · Managing Supply Chain Resilience
The AURA framework contains five areas: plan, source, make, deliver, and return.
In all the five areas, the AURA framework provides guidance on how to utilize the
resilience capabilities in business-as-usual situations, thereby creating inherent net-
work adaptability that is equally valuable at “normal” and disruption times (Iva-
nov et al. 2019; Ivanov and Dolgui 2020c, Hsieh and Chang 2020). Let us
summarize the major elements that can be used both for value creation and for
resilience.
Plan:
55 Multiple structural networks designs
55 Adaptive mechanisms to transition between structural designs (Ivanov 2020b)
55 Supplier monitoring and transportation control using end-to-end visibility and
data analytics capabilities to predict and analyze the disruptions
Source:
55 Integration of backup suppliers into everyday business processes, e.g., regard-
ing new product development or multiple sourcing for their tighter integration
into the supply chain and a faster activation in case of an emergency.
2.7 · Supply Chain Resilience During a Global Pandemic
51 2
55 Product substitution is an important tool in managing resilience during sup-
plier disruptions (Gupta et al. 2020) and can also be used as a sales and market-
ing instrument.
55 Supplier collaboration portals can be used to enhance end-to-end visibility and
support recovery coordination in emergency cases.
Make:
55 Capacity agility and flexibility – flexible production lines and the use of post-
ponement principles are important both for market responsiveness and resil-
ience.
55 Digital supply chain twins and Industry 4.0 technologies create end-to-end vis-
ibility and so contribute to resilience and value-adding activities (Ivanov et al.
2019; Ivanov and Dolgui 2020c).
Deliver:
55 Decentralized logistics network designs help improve efficiency while simulta-
neously reducing the ripple effect.
55 Omnichannel distribution networks enhance both market responsiveness and
resilience.
55 T&T technologies integrate disruption monitoring and real-time transporta-
tion control.
Return:
55 Recycled materials can be used for resilience and sustainable operations (Hsieh
and Chang 2020).
55 Closed-loop supply chain resources can be utilized in disruptions cases and
used to enhance firm’s profitability.
The COVID-19 pandemic has been the strongest test to resilience of supply chains.
Supply chain resilience capabilities have been established at many firms in response
to more and more frequent natural and man-made disasters for the last two
decades. Supply chain resilience management is based on the following disruption
profile: “normal operations – disruption – recovery – bounce-to-old-normal.”
However, the “old” normal cannot always exist anymore in case of super-disruptions
and bouncing back can become problematic (Ivanov 2020a).
The following resilience management elements have been mostly utilized by
firms to cope with the COVID-19 pandemic:
55 Health and safety measures
55 Business continuity plans
55 Global multi-sourcing strategy
52 Chapter 2 · Managing Supply Chain Resilience
iscussion
D
55 What are the main resilience capabilities you can identify in this case study?
55 What proactive and reactive measures can you see at AGGO?
55 How can we prepare a supply chain for maintaining business continuity in a case
of super disruptions such as a global pandemic?
55 Why is it important for resilience to design and manage supply chains as flexible
and adaptable systems at “normal” times?
54 Chapter 2 · Managing Supply Chain Resilience
To summarize, the analysis of the firms’ operations during the COVID-19 pan-
demic has shown that measures and actions taken by the companies are in most
instances in line with what has been recommended by supply chain resilience man-
2 agement theory. At the same time, the pandemic posed a novel setting, i.e., supply
chain crisis, which is characterized by long-term disrupted state in the supply net-
work, unstable current situation and uncertainty of future developments in the
markets, supply base, and capacities entailing a danger of supply chain collapses
and interruption of providing markets with goods and services.
The following general main recommendations can be derived for future
pandemic-like disruptions.
Preparedness measures:
1. Do not focus on a single region, neither in supply nor in demand
2. Ramp up inventory and position it strategically correct when a lockdown is
anticipated
3. Have a working business continuity plan in place
4. Develop viable supply chain designs and identify potential new (temporary)
business opportunities to quickly repurpose the supply chain
5. Manage the supply chain as an adaptive system utilizing new technologies for
creating highly flexible and reconfigurable supply networks
Recovery measures:
1. Take care of your employees
2. Collaborate closely with your supply chain partners
3. Repurpose the supply chain
4. Leverage modern digital technologies
►►Example
We illustrate using examples. The Panera Bread chain, having lost about 50% of its
largely indoors business to COVID-19, adapted to a new supply chain in order to offer
staple groceries along the traditional soups and bread. Burger chain Fuddruckers sold
toilet paper, gloves, and bleach at specific locations – products far removed from its regu-
lar fast food product line, requiring entirely different supply chain infrastructure (Taylor
2020). Many firms entered non-traditional supply markets for their existing products, in
order to meet disruption-induced surges in demand, as well as compensate for sudden
deficiencies in their regular supply chains. Examples include intertwining of commercial
and healthcare supply chains. Automotive companies intertwined with healthcare sup-
ply chains to produce ventilators and face shields. Moreover, intertwinings of competing
supply chains have been observed (Wang et al. 2018, Ivanov and Dolgui 2020). Amazon
turned to demand decline hit Lyft for warehouse and logistical staffing needs, with the
latter directing its employees to Amazon positions (Statt 2020). ALDI found a similar
unconventional supply chain partner in McDonalds. When demand surged at ALDI
Nord and ALDI Süd due to COVID stocking up customer behavior, ALDI collabo-
rated with demand-constrained McDonald’s Germany to allow the latter’s employees
to accept temporary positions at ALDI. The arrangement was lauded as a “win-win
situation” by McDonald’s CEO and elicited a “special times require special solutions’
commendation from ALDI management” (ESM 2020). ◄
References
55 2
2.8 Discussion
We learned the strategic importance of resilience and its capabilities which firms
should build to recover after disruptions.
55 Can you name some resilience capabilities?
55 Can you explain how proactive and reactive resilience capabilities are mutually
connected?
55 Can you explain their application in different practical settings?
55 What recovery strategies do you know with regard to redundancy, agility, and
visibility?
Finally, we learned that supply chain resilience issues in the context of a super-
disruption, i.e., the COVID-19 pandemic require a specific treatment
55 What are the specific features of resilience management during a super-
disruption like a pandemic?
55 Discuss some examples of resilience management in different industry and ser-
vice sectors which have been observed at the COVID-19 pandemic times
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63 3
Modeling Supply
Chain Resilience
Contents
References – 89
nnLearning Objectives
Supply chains are complex networks that operate subject to uncertainties. Modeling
resilience in such complex systems can be a challenging task. We explain in this chap-
ter the existing approaches to supply chain resilience modeling such as optimization,
simulation, and network analysis. To this end, our learning objectives for this chap-
ter are as follows:
3 55 Understand the management insights that can be obtained by optimization,
simulation, and network analysis methods of resilience modeling in supply
chains
55 Utilize mathematical optimization for supply chain recovery
55 Use digital supply chain twins as a combination of optimization, simulation, and
data analytics
55 Explain the usage of simulation techniques to identify the impact of disruptions
on supply chain performance
Modeling methods for supply chain resilience analysis can be classified according
to network, process, and control levels (Ivanov and Dolgui 2021) as shown in
. Fig. 3.1.
The methods at the network level primarily look at unlocking associations
between network structures and risk propagations (Li et al. 2020, 2021; Basole and
Bellamy 2014). Network modeling also allows to detect disruption scenarios and
identify critical nodes (or combinations of nodes), the failure of which would lead
to supply chain discontinuities and operational collapse (Kim et al. 2015). At the
network level, supply chain robustness and resilience under disruption propagation
and structural dynamics can be analyzed and measured. Along with the stress-
testing of existing supply chain designs, the network-level analyses can offer guid-
Network-wise
Planning decisions Process control
analysis
>>Important Observation
The network- and graph-theoretical studies allow us to understand potential weak-
nesses in supply chain designs, taking into account the structure, connectivity, and
dependence within the supply chain.
Compared to the network level, the methods at the process level take a more spe-
cific perspective (Dolgui et al. 2020b; Ivanov and Dolgui 2020; Ivanov and Sokolov
2010, 2012, 2020; Ivanov et al. 2021a; Paul & Chowdhury 2021). For example,
Garvey and Carnovale (2020) argue that “managers should focus more of their
attention on control or mitigation of exogenous events […] and spend less of an
effort and resources on mitigating the propagation of exogenous risk...” The math-
ematical optimization studies consider supply chain networks, which may vary
structurally and parametrically over time, and optimize flow reconfigurations
under disruption propagation (Sawik 2011; Ivanov et al. 2013, 2017). Optimization
models presume some parametrized structures to balance demands, processing
capacities, and supply (Ivanov et al. 2015; Paul et al. 2017; Sawik 2019; Azaron
et al. 2020; Sawik 2013; Ivanov et al. 2016; Khalili et al. 2016; Gupta et al. 2020).
The analysis at the process level is usually supported by mathematical optimization
(Paul et al. 2019), and system dynamics (e.g., Ghadge et al. (2013), along with the
overall impact of the ripple effect on performance (Giannoccaro et al. 2018; Dol-
gui et al. 2018; Hosseini et al. 2020).
As the most desirable outcome, process-level analysis seeks to identify and test
resilient supply chain designs to sustain disruptions, which range from optimistic
and pessimistic scenarios (Ivanov et al. 2014) to probability-based disruptions
(Pariazar et al. 2017) to worst-case scenarios in robust optimization (Zhao and
Freeman 2019; Özçelik et al. 2020). In some settings, the authors solve inverse
problems and search for the elements in supply chain structures that should be
strengthened to withstand disruption propagation (Liberatore et al. 2012; Ivanov
et al. 2013). Some models include recovery costs (Ivanov et al. 2016) and sustain-
ability issues (Pavlov et al. 2019).
>>Important Observation
The process-level methods help to analyze measures for disruption propagation miti-
gation. As the most desirable outcome, process-level analysis seeks to identify and
test resilient supply chain designs to withstand disruptions.
(Ivanov 2019; Dolgui et al. 2020a). Dynamic supply chain behaviors and time
dependencies in disruption propagation and responses (Ivanov 2017a, b, 2020a, b)
can be modeled conveniently using simulation techniques. In . Table 3.1, we sum-
marize major methods, their outcomes, and managerial applications.
Supply chains are evolving toward technology-driven networks and digital ecosys-
tems (Queiroz et al. 2019; Roeck et al. 2020; Wamba and Queiroz 2020). Data
analytics, additive manufacturing, and Industry 4.0 allow creating end-to-end vis-
ibility for supply chains based on dynamically reconfigurable material flows and
digital information flows. For example, digital supply chain financing with the use
of blockchain (e.g., deep tier financing) creates an end-to-end supply chain visibil-
ity that is of vital importance for supply chain viability and resilience.
Based on the literature, digital technology for supply chain resilience manage-
ment can be classified into the following:
55 Visualization
55 Early warning systems
55 Blockchain and supply chain financing
55 Real-time disruption-detection systems (Sheffi 2015; Dolgui et al.)
Definition
Digital supply chain twin is a computerized model that at each point of time repre-
sents the physical supply chain with the actual transportation, inventory, demand,
and capacity data and can be used for planning and real-time control decisions.
In the digital supply chain twin, model-based decision-making support enables the
simulation of the supply chain’s dynamic behavior in the event of disruption (Iva-
nov and Dolgui 2020c). In addition, before a disruption occurs, potential impacts
on supply chain performance can be evaluated, and then recovery policies can be
optimized. Data analytics is used at the proactive stage for building realistic disrup-
tion scenarios based on risk data about historical disruptions and other data (e.g.,
supplier reliability data from ERP systems) during the supply chain design phase.
At the reactive stage, data analytics is used for disruption identification in real time
using process feedback data, e.g., from sensors, T&T, and RFID (Papadopoulos
et al. 2017; Panetto et al. 2019; Fragapane et al. 2020; Ivanov et al. 2019, 2021b, c).
68 Chapter 3 · Modeling Supply Chain Resilience
Supplier collaboration Suppliers and sourcing Storage capacity (for Throughput (for Processing capacity
Sensors
plattform policy SMCG-slow moving FMCG-fast moving in production
consumer goods) Consumer goods), e.g.
cross-docking
Planned transportation
capacity
Trace and Tracking
RFID
Actual transportation Actual inventory Actual capacity Business
capacity intelligence
Resilient
ERP supply chain
APS ERP
Safety stock design and Costs
WMS WMS
Recovery planning
3.2 · End-to-End Visibility, Digital Technology, and Resilience
Lead-time Demand
Disruptions
Planned Actual Demand Actual
lead-time lead-time forecast demand
69
.. Fig. 3.2 Data structure in supply chain disruption risk modeling framework (Ivanov and Dolgui 2020c)
3
70 Chapter 3 · Modeling Supply Chain Resilience
Real-time Statistics
Disruption data
(monitoring) (analysis)
feedback
Learning
Learning
OPTIMIZATION
SIMULATION
MODEL
MODEL
Constraint
Events
System
Proactive Reactive
Prediction resilient supply recovery Real-time
and analysis chain design planning control
ERP BI
Performance analysis
.. Fig. 3.3 Digital supply chain twin for managing disruption risks
.. Fig. 3.4 Interrelations between risk data, modeling, and performance analysis. (Based on Ivanov
and Dolgui 2020c)
3.3 · Optimization: Recovery Model of a Multi-stage Supply Chain
71 3
data analytics can be used as data-driven learning system to use past experiences to
manage future disruptions and so utilizing cyber-physical, artificial intelligence,
and machine learning principles and technologies (Cavalcante et al. 2019; Panetto
et al. 2019).
We consider a supply chain network that is composed of two factories (nodes 1 and
6), a central distribution hub (node 4), two regional warehouses (nodes 2 and 3), a
rented regional warehouse (node 7), and a customer (node 5) in line with Ivanov
et al. (2013). The process dynamics in each of the nodes and transportation arcs
are limited by maximal production and warehouse capacity, processing intensity,
and transportation intensity (see . Fig. 3.5).
In . Fig. 3.5, triangles refer to the warehouse capacity, and numbers on the
arcs refer to maximal transportation intensity. The suppliers first deliver materials
to the factories 1 and 6. Then, the goods are processed at the central distribution
hub 4. The goods from hub 1 are additionally processed at warehouses 2 and 3.
From hub 4, the goods are moved to the customer at node 5, which has a certain
demand in each of the periods (i.e., 100 units). In order to take into account pos-
sible disruptions in the channel 4-5, a rented warehouse is used as a backup facility
(i.e., a proactive resilience capacity) for deliveries to customer 5. Besides, it is pos-
sible to move small quantities (maximal 30 units) directly from node 2 to node 5.
30
50 50
30
20 100
20 5
3 4
100
40 40
50 50
10 20
6 7
72 Chapter 3 · Modeling Supply Chain Resilience
In this section, we introduce the main and dual models for the problem context
identified above based on Ivanov et al. (Ivanov et al. 2013, 2014a, Ivanov et al.
2016).
Let us define the following notations.
zz Indexes:
55 k = {1, 2, …, Lχ} is the number of a time interval (i.e., interval of structural
constancy) in the planning horizon T = (t0; tf].
55 χ is the number of a disruption scenario.
55 i = {1, 2, …, nχ} is the number of the delivering node in the supply chain, i Î N c- .
55 j = {1, 2, …, nχ} is the number of the receiving node in the supply chain, j Î N c+ .
55 ρ ∈ P = {1, 2, …, p} is the number of a commodity in the supply chain.
zz Sets:
55 Xχ(t) = {Axi(t), i ∈ Nχ} is the set of nodes on the supply chain.
55 Eχ(t) = {exij(t), i, j ∈ Nχ} is the set of arcs in the supply chain.
55 Wχ(t) = {wχij(t), i, j ∈ Nχ} is the set of operations characteristics for the transpor-
tation (if i ≠ j) or processing at warehouse (if i = j).
55 N c+ik is the set of node numbers for the nodes transmitting products to Aχi at
time interval k.
55 N c-ik is the set of node numbers for the nodes receiving products from Aχi at
time interval k.
55 Δχβ = {δχ} is the set of possible supply chain recovery plans.
3.3 · Optimization: Recovery Model of a Multi-stage Supply Chain
73 3
zz Variables:
55 γρ is the variable that denotes the importance of the product ρ.
55 λρ is the variable that denotes the urgency of the product ρ.
55 eχ(t) is the time-spatial matrix function to define the links between Axi and Axj,
and exij(t) is equal to 1, if a transportation from Axi to Axj is possible, 0 – other-
wise.
55 Iχk is the total ordered quantity from all suppliers in scenario χ within the inter-
val k.
55 Vχi(t) is the maximal warehouse capacity of the node Aχl.
55 ωχijρ(t) is the maximal transportation channel intensity for the product ρ between
Aχi and Aχj.
55 ψχiρ(t) is the maximal inbound processing intensity for the product ρ in Aχl.
55 ϕχiρ(t) is the maximal outbound processing intensity for the product ρ from Aχi.
It is assumed that each network element within the subintervals (structure con-
stancy intervals) is indicated by these characteristics that do not change within this
interval.
The following costs are included in the analysis:
55 cχijρ(t) is the transportation cost for the product ρ from Aχi to Aχj.
55 hχiρ(t) is the inventory cost for the product ρ at the node Aχi.
55 πχiρ(t) is the processing cost for the product ρ at the node Aχi.
55 rχiρ(t) is the return (utilization) cost for product ρ at the node Aχi.
55 fi, fij are the fixed costs of the node Aχi and channel from Aχi to Aχj, respectively.
zz Decision variables:
55 xχijρk is the amount of product ρ process in factory Aχi, transmitted from Aχi to
Aχj and received at Aχj at time interval number k.
55 yχjρk is the product ρ amount relating to the node Aχj and to be stored at ware-
house at time interval number k.
55 gχjρk is the product ρ amount relating to the node Aχj and to be delivered at time
interval k.
55 zχjρk is the product ρ amount relating to the node Aχj and to be returned (as
caused by the missing capacity of supply chain nodes and channels) at time
interval number k.
The main model can be written as balance Eqs. (3.1)–(3.2) and capacity constraints
(3.3):
æ ö
ç å xc ij r k -
ç jÎN + å xc jir k ÷÷ + ( yc ir k - yc ir ( k -1) ) + g c ir k + zc ir k = I c ir k . (3.2)
è cik jÎN c-ik ø
74 Chapter 3 · Modeling Supply Chain Resilience
p
0 £ xc ij r k £ wc ij r k × ( tk - tk -1 ) ; 0 £ å yc i r k £ Vc i ; 0 £ g c i r k £ fc i r k × ( tk - tk -1 ) ;
r =1
(3.3)
z c i r k ³ 0,
p nc Lc
J c 2 = ålr ååg c i r k ; (3.5)
r =1 i =1 k =1
p nc Lc
J c 3 = åg p åå yc i r k ; (3.6)
r =1 i =1 k =1
p nc nc Lc p nc Lc p nc Lc
J c 4 = åååcij r åxc ij r k + ååhi r å yc i r k + ååp i r åg c i r k
r =1 i =1 j =1 k =1 r =1 i =1 k =1 r =1 i =1 k =1
p nc Lc nc nc nc
+ ååri r åz c i r k + å fi + åå fij (3.7)
r =1 i =1 k =1 i =1 i =1 j =1
Optimal supply chain recovery plan δχ under disruption scenarios can be denoted as
follows:
d c = xc ,g c ,yc ,z c = xc ij r k ,g c i r k ,yc i r k ,z c i r k .
Then, Eqs. (3.1)–(3.3) define a set of feasible supply chain recovery plans Δχβ = {δχ}
in the disruption scenario Scχ. The search for optimal supply chain recovery plan
D*cb Í D cb is performed under preference relations (e.g., weights) based on the fol-
lowing criteria: (Jχ1(δχ) → min, Jχ2(δχ) → max, Jχ3(δχ) → min, Jχ4(δχ) → min). For the
procedure of the multi-objective resolution, we refer to Ivanov et al. (2013).
Now we turn to dual problem formulation. Dual problem formulation is a prac-
tical need in at least two cases. First, in the case of unsatisfied demand (i.e., no
feasible solution), the bottlenecks can be identified and strengthened by investment
in new facilities or capacity expansion. Second, such models can be applied by
analyzing future investments in new facilities/capacities. The basis of this analysis
is balancing demand and capacities at aggregate level.
In practice, the following parameters may influence the network planning
results:
55 Vχi(t) is the maximal warehouse capacity of the node Aχl.
55 ωχijρ(t) is the maximal transportation channel intensity for the product ρ between
Aχi and Aχj.
55 ψχiρ(t) is the maximal inbound processing intensity for the product ρ in Aχl.
3.3 · Optimization: Recovery Model of a Multi-stage Supply Chain
75 3
55 ϕχiρ(t) is the maximal outbound processing intensity for the product ρ fromAχi.
55 cχijρ(t) is the transportation cost intensity for the product ρ from Aχi to Aχj.
55 hχiρ(t) is the inventory cost for the product ρ at the node Aχi.
55 πχiρ(t) is the processing cost intensity for the product ρ at the node Aχi.
55 rχiρ(t) is the return (utilization) cost for the product ρ at the node Aχi.
55 fi, fij are the fixed costs of the node Aχi and channel from Aχi to Aχj, respectively.
p n- L- p n- L-
a 3a 2 ålr ååg -i r k - a 3a1 åg r ååz-i r k - a 4u- ³ z . (3.9)
r =1 i =1 k =1 r =1 i =1 k =1
In addition, flow-related variables are to meet the constraints (3.10) and (3.11):
T
x+ ij r1 x+ ij r 2 ¼ x+ ij r L+ g + i r1 g + i r 2 ¼ g + i r L+ y+ i r1 y+ i r 2 ¼ y+ i r L+
d+ =
z+ i r1 z+ i r 2 ¼ z+ i r L+ u+ n + i h+ i1h+ i 2 ¼h+ iL+ (3.10)
T
x-ij r1 x-ij r 2 ¼ x-ij r L- g -i r1 g -i r 2 ¼ g -i r L- y-i r1 y-i r 2 ¼ y-i r L-
d- =
z-i r1 z-i r 2 ¼ z-i r L- u- n -i h-i1h-i 2 ¼h-iL- (3.11)
We assume that nodes in different execution scenarios have the same pre-functioning
history, i.e., R+0i = R−0i = R0i ∀ i = 1, …, n, n = n+ = n−; and capacities and process-
ing/transportation intensities are equal for both pessimistic and optimistic scenar-
ios, i.e., V+i = V−i = Υi ∀ i, ω+ijρk = ω−ijρk = ϖijρ, ϕ+iρk = ϕ−iρk = φiρ ∀i, j, ρ, k.
With regard to the above-mentioned aspects, the dual problem for optimal sup-
ply chain redesign with structure dynamics considerations can be formulated as
shown in Eqs. (3.12)–(3.25):
æ n p n p n n ö
a 5z - a 6 ç åL i U i + ååPi r ji r ( t f - t0 ) + åååRij rv ij r ( t f - t0 ) ÷ ® max (3.12)
ç i =1 ÷
è r =1 i =1 r =1 i =1 j =1 ø
p n+ L+ p n+ L+
a 3a 2 ålr ååg + i r k - a 3a1 åg r ååz+ i r k - a 4u+ ³ z , (3.13)
r =1 i =1 k =1 r =1 i =1 k =1
p n- L- p n- L-
a 3a 2 ålr ååg -i r k - a 3a1 åg r ååz-i r k - a 4u- ³ z , (3.14)
r =1 i =1 k =1 r =1 i =1 k =1
76 Chapter 3 · Modeling Supply Chain Resilience
æ ö
( )
ç å x+ ij r k - å x+ ji r k ÷ + y+ i r k - y+ i r ( k -1) + g + i r k + z+ i r k
ç jÎN + ÷
è +i jÎN +-i ø (3.15)
= I + i r k , i Î N , r Î P, k = 1, ¼, L+ ,
3 æ ö
( )
ç å x-ij r k - å x- ji r k ÷ + y-i r k - y-i r ( k -1) + g -i r k + z-i r k
ç jÎN + ÷
è -i jÎN --i ø (3.16)
= I -i r k , i Î N , r Î P, k = 1, ¼, L- ,
p n L+ p L+
u+ - åårij r åx+ ij r k - åp i r åg + i r k - v+ i = R0i , i Î N , (3.17)
r =1 j =1 k =1 r =1 k =1
p n L+ p L+
u- - åårij r åx-ij r k - åp i r åg -i r k - v-i = R0i , i Î N , (3.18)
r =1 j =1 k =1 r =1 k =1
( )
0 £ x+ ij r k £ v ij r × tk+ - tk+-1 , 0 £ g + i r k £ ji r k ×
( )
0 £ x-ij r k £ v ij r × tk- - tk--1 , 0 £ g -i r k £ ji r k ×
where, Λ is the fixed cost, Π is the processing cost, and R is the transportation cost
in the dual model.
Priority coefficients α5, α6 ≥ 0 (α5 + α6 = 1) in the goal function (3.12) character-
ize supply chain efficiency subject to variable and fixed costs. The analysis of prob-
lem (3.12)–(3.25) shows that this is a linear programming model with two-side
constraints.
3.3 · Optimization: Recovery Model of a Multi-stage Supply Chain
77 3
3.3.2.1 Experimental Results
We now illustrate the optimization model application to resilience analysis. Let us
consider two disruption scenarios of different severity defined in . Figs. 3.6 and
3.7 in line with Pavlov et al. (2020).
. Figures 3.8 and 3.9 show the optimal recovery plans obtained for the two
disruption scenarios.
The optimal solution for the less severe scenario allows a delivery of 300 units
(which is the total demand over three periods with a period demand of 100 units)
which is equal to a fulfillment rate of 100%. For the more severe disruption sce-
nario, the optimal solution allows a delivery of 250 units which is equal to a fulfill-
ment rate of 83.3%. As such the decision-makers can prepare recovery plans for the
disruption scenarios of different severities and efficiently deploy them by relating a
real disruption to one of the previously detected disruption scenarios.
However, in some cases, the supply chain managers can be interested in achiev-
ing some desired level of resilience and thus redesigning their supply chains. In
particular, the following questions can be considered:
55 What elements are critical for the supply chain design and what elements are
redundant and can be removed without decreasing the service level?
55 Do additional costs in supply chain design elements pay off by the performance
increase?
The analysis shown below has been performed based on the dual problem formula-
tion for the developed main model. To answer the first question, in . Fig. 3.10, a
redesigned supply chain structure is presented. The analysis of the dual variables in
the models for optimistic and pessimistic scenarios and the solving of the inverse
problem allowed synthesizing the “ideal” supply chain to meet the demand of
300 units in both scenarios and thus ensure resilience (see . Fig. 3.10).
In . Figs. 3.11 and 3.12, the optimized optimal supply chain recovery plans for
optimistic and pessimistic disruption scenarios are presented.
100
50
20 20 20
1 30 1 30 1
50 20 50 20
20 20 20 20
50
60
50
2 3 2 3 2 50 3
50 50 20 50 50 20 20
10 10 10
50 50 50
30
4 40
6 30
4 6 30
4 6
0 0 0
10 20 10 20 10
50 50 50 20
5
[100]
40
7 5
[100]
7 5
[100]
7
40
4 Disrupted nodes Maximum shipment capacities
50 Incoming flows
100
50
20 20 20
1 30
1 30
1
50 20 50
20 20 20 20 20
2 3 2 3 2 3
50
60
50
50
50 50 20 50 50 20 50 20
10 10 10
50 50 50
6 4 6 4 6
3 4
30 30 30
40 40 40
0
10 20 20 20
50 50 50
5
[100]
40
7 5
[100]
40
7 5
[100]
40
7
40
4 Disrupted nodes Maximum shipment capacities
50 Incoming flows
50
20 20 20
30
50
1 30 50
1 20 20
1 20
20
20 10 20 10 20 10
50 50 50
2 3 2 3 2 3
50
60
50
20
20 20
20 50 20
20 50 50 10
10 10 50
10
30 50 30 50 30
100
4 6 100 4 6 100 4 6
50 90 40 50 90 50 60
20 40 20 40 20 20 20
5
[100]
7 5
[100]
7 5
[100]
7
100 100 100
50
4 Disrupted nodes Maximum shipment capacities 20 Maximum warehouse capacities
Customer demand actually used shipment capacities 10 actually used warehouse capacities
[100] 20
.. Fig. 3.8 Recovery plan for a less severe disruption scenario (Pavlov et al. 2020)
With the redesigned supply chain, the profit is achieved in both the optimistic
and the pessimistic scenarios due to 100% service level (300 units of the delivered
goods), decreased fixed costs (63$ instead of 90$), and inventory costs (8.4$ instead
of 12.6$). In the optimistic scenario, the transportation cost has been decreased
from 28.6$ to 27.8$. In the pessimistic scenario, transportation cost has increased
from 27.0$ to 33.6$ mainly due to the increase in the volume of the delivered goods.
It can be concluded that through the capacity alignment and fixed cost reduction,
both high resilience and by tendency lower inventory and transportation cost can
be achieved.
3.4 · Simulation: Ripple Effect Prediction During the COVID-19…
79 3
100
50
20 20 20
30
50
1 30 50
1 20 20
1 20
20
20 10 20 10 20 10
50 50 50
2 3 2 3 2 3
50
60
50
20 50 20 50 20
20 50 20 10 20
10 10 50
10
30 50 30 50 30
100
4 6 4 40
6 20
4 40
6
50 90 40 50
20 40 20 50 40 20 40 20
5
[100]
7 5
[100]
7 5
[100]
7
100 90 60
50
4 Disrupted nodes Maximum shipment capacities 20 Maximum warehouse capacities
Customer demand actually used shipment capacities 10 actually used warehouse capacities
[100] 20
.. Fig. 3.9 Recovery plan for a more severe disruption scenario (Pavlov et al. 2020)
35
15 20
30
10 70
20 5
3 4
100
70 70
60 10
6 7
The COVID-19 pandemic generated supply chain disruptions on a scale unlike any
seen before. Numerous ripple effects have been seen at the pandemic times (Ivanov
2020b; Ivanov and Das 2020). The pandemic has quite unique implications for
supply chains. In contrast to geographically centered, singular occurrence natural/
industrial disasters, a pandemic is not limited to a particular region or confined to
a particular time period. Different components of a supply chain are affected
sequentially or concurrently – manufacturing, DCs, logistics, and markets can
80 Chapter 3 · Modeling Supply Chain Resilience
.. Fig. 3.11 Optimal supply chain recovery plans for the redesigned supply chain in an optimistic
scenario (Ivanov et al. 2013)
.. Fig. 3.12 Optimal supply chain recovery plans for the redesigned supply chain in a pessimistic
scenario (Ivanov et al. 2013)
become paralyzed within overlapping time windows. This section illustrates the
ripple effect and its consequences for supply chain resilience and performance in
the COVID-19 pandemic setting.
USA USA
Germany Europe
Suppliers
Customers DC Factories
We are interested in examining the epidemic outbreak impact on the supply chain
subject to some scenarios which were likely to happen after March 13, assuming
mitigation of epidemic outbreak in China.
The ripple effect was considered in three aspects: the speed of epidemic propa-
gation, the resultant duration of the disruption at DC node, and the duration of
the reduced (50% drop) demand period. We examined different disruption
durations and scales of epidemic propagation. In total, we investigated 39 simula-
tion setups and are as follows (. Fig. 3.15).
Scenario I considers three different epidemic durations and the resulting pro-
duction stops at the producers in China of 45 days, 60 days or 90 days. These num-
bers are based on the actual or forecasted quarantine times in China from January
to March 2020.
Scenario II extends scenario I by adding epidemic propagation to USA,
Germany, and Brazil, which results in 12 different simulation setups. First, we
looked at two different setups with fast and slow epidemic propagations of 30 and
60 days, respectively. These times are based on the actual numbers on the start of
the quarantine measures outside China. For example, if an epidemic outbreak
begins in China on January 15, we set up epidemic outbreak downstream the sup-
ply chain with a delay of either 30 days (i.e., begin on February 15) or 60 days (i.e.,
begin on March 15). Second, we set up two different lengths of disruption periods
in the USA, Germany, and Brazil of 45 or 90 days. These numbers are based on the
actual or forecasted durations of the quarantine measures (e.g., in Germany the
quarantine measures were introduced on March 16 until April 20, with a declared
possibility of prolongation for another 45 days if the epidemic outbreak will not be
dampened by April 20). An example of such a combined setup is a disruption in
3.4 · Simulation: Ripple Effect Prediction During the COVID-19…
83 3
epidemic
duration in
China
45 days
Factory DC Market
I: disruptions only in China 60 days
90 days
45 days
Time between epidemic outbreaks
Epidemic duration in US/Europe/South
II: disruptions in China, in China and US/Europe/South
America: 90 days
USA, South America 60 days America: 60 days
and Europe
90 days
Factory DC Market
Factory DC Market
China for 45 days (say from January 15 to February 29), beginning of an epidemic
outbreak in Germany in 60 days after the epidemic outbreak in China (i.e., on
March 15), and the resulting disruption duration at the DC in Germany of 90 days
(i.e., from March 15 to June 15). In total, we have 12 different setups considering
combinations of the upstream disruption duration, propagation speed of the epi-
demics downstream, and the downstream disruption duration. Finally, in scenario
III, we extended the 12 setups from the scenario II by adding demand disruption
of 50% in the markets in the USA, Germany, and Brazil of a short or long duration
of 45 or 90 days, respectively. We assume that the market disruptions occur in the
same time frame as the downstream DC disruptions. The rationales behind these
setups are the observed trends for demand and capacity decreases during the quar-
antine times. This extension resulted in 24 new simulation setups. . Table 3.2 pres-
ents selected, specimen simulation runs. A fuller simulation is available in Ivanov
(Ivanov 2020b).
Expectedly, scenario I, where the epidemic’s impact is still confined to China,
sees performance declines, stockouts, and price variability. In such conditions, the
duration of the (yet limited) disruption affects supply chain performance (cf. line 1,
. Table 3.2). Interesting insights emerge into scenario II. Now supply chain per-
formance is seen to be a function of pandemic propagation velocity and the dura-
tion of pandemic-induced downstream disruption.
Consider the following illustration for lines 2 and 3 in . Table 3.2 (see
. Figs. 3.16 and 3.17).
. Figures 3.16 and . Fig. 3.17 respectively contrast the difference in supply
chain performance under the 60- and 90-day downstream disruption duration
3
84
No. Scenario Upstream Delay in epidemic Downstream Duration of On –time Revenue, $ Profit, $
disruption outbreak disruption market delivery, %
duration downstream the duration disruption
supply chain (demand drops
by 50%)
4 60 60 45 0 71 92,259 7241
5 III 45 30 45 45 82 97,026 12,431
6 45 60 45 45 82 98,031 9448
7 45 60 90 45 70 90,947 3789
8 60 30 45 45 82 97,026 12,106
9 45 60 90 90 75 87,484 2133
10 60 60 90 90 69 77,490 −268
11 90 60 90 90 69 77,490 −734
3.4 · Simulation: Ripple Effect Prediction During the COVID-19…
85 3
a
.. Fig. 3.16 Supply chain performance in scenario II with 45 days of upstream disruption, 60 days of
delay in epidemic outbreak downstream, and 45 days of downstream disruption (line 2 in . Table 3.2)
(screenshot from anyLogistix) (Ivanov and Das (2020)). (a) Production-inventory dynamics. (b) Cus-
tomer (ELT service level) performance. (c) Financial performance. (d) Lead-time performance
3
b
.. Fig. 3.17 Supply chain performance in scenario II with 45 days of upstream disruption, 60 days
of delay in epidemic outbreak downstream, and 90 days of downstream disruption (line 3 in
. Table 3.2) (screenshot from anyLogistix) (Ivanov and Das (2020)). (a) Production-inventory
dynamics. (b) Customer (ELT service level) performance. (c) Financial performance. (d) Lead-time
performance
. Table 3.3 provides a summary of the managerial insights obtained through this
study which can be used by supply chain managers to predict the impact of super-
disruptions (i.e., a global pandemic) on their supply chains.
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3
93 4
Measuring Supply
Chain Resilience
Contents
References – 124
4.1 · Measures of Supply Chain Resilience
95 4
nnLearning Objectives
Measuring supply chain resilience is important in different settings. First, if we have
quantitative measures to assess supply chain resilience, we can compare resilience of
different supply chains or different alternative supply chain designs. Second, resil-
ience measures can be used for comparing resilience of our supply chains with the
competitor’s resilience. Third, we can use resilience measures to assess our efforts in
improving resilience over time. In this chapter, we explain the existing approaches
to supply chain resilience and ripple effect measurement. To this end, our learning
objectives for this chapter are as follows:
55 Understand probabilistic and non-probabilistic approaches to supply chain resil-
ience measurement
55 Be able to quantify supply chain resilience using Bayesian networks
55 Apply entropy analysis to measure supply chain adaptability as a key resilience
capability
55 Quantify the ripple effect in supply chains using supplier risk exposure index
In this section, we review the measures that have been used to quantify resilience.
A comprehensive review of definitions and measures of system resilience has been
compiled by Hosseini et al. (2016). Resilience in the context of supply chain man-
agement is usually quantified using some metrics bounded between [0,1]. Many of
the existing methods to measure supply chain resilience are based on the work of
Bruneau et al. (2003) who measured the loss of community resilience following an
earthquake (Eq. 4.1):
t1
RL = ò (100 - Q ( t ) ) dt , (4.1)
t0
where Q(t) is the expected quality of community infrastructure at time t, t0 is the
time at which the earthquake occurs, and t1 is the time at which community infra-
structure returns to its stable condition. Some research addresses the consideration
of gradual performance degradation and recovery as an inherent supply chain
resilience property (Ivanov et al. 2018; Pavlov et al. 2018).
>>Important Observation
Supply chain resilience assessment should include consideration of recovery strat-
egies. Otherwise, we talk about robustness analysis if a supply chain reaction to
disruption is analyzed with consideration of some redundancies only and without
recovery actions.
How to use the resilience estimates? First, the resilience metrics can be used to
compare resilience of different alternative supply chain designs or the effectiveness
of different recovery strategies. Second, the metrics are of value when comparing
resilience performance over several years. Third, we can use resilience indexes to
compare resilience of different companies.
96 Chapter 4 · Measuring Supply Chain Resilience
0
tinitial t0 t0 +T t0 +T*
Consider some metrics of supply chain resilience. Zobel et al. (2021) extended
the Bruneau’s concept by defining a predicted disaster resilience measure to be the
“relative amount of functionality retained by the system over time” (Eq. 4.2 and
. Fig. 4.1).
XT
T* -
R ( X ,T ) = 2 = 1 - XT X Î [ 0,1] , T Î éë0,T * ùû
(4.2)
*
T 2T *
where X is the initial loss in system performance as a fraction and T is the time until
recovery. Note that in Eq. (4.2), instantaneous loss and a constant rate of recovery
are assumed.
Based on a modified predicted resilience concept, Torabi et al. (2015) developed
a metric that allows to quantify supply chain resilience with regard to supplier dis-
ruptions. Let’s assume that the amount of lost capacity is denoted by A, B, and C,
respectively, and that TA, TB, and TC denote the time of receiving items associated
with the A, B, and C recovery strategies. The loss of resilience RE′ can be shown
graphically as the shaded area in . Fig. 4.2 and can be mathematically calculated
by Eq. (4.3):
RE¢ = A ´ TA + B ´ TB + C ´ TC (4.3)
It is clear that a lower value of RE′ results in higher supply resilience. The
authors then calculated the resilience of the supply base by Eq. (4.4):
RE¢
RE = 1 - (4.4)
Q ´T
4.1 · Measures of Supply Chain Resilience
97 4
C
Amount of shortage
Q B
TA
TB
TC
Time
.. Fig. 4.2 Measuring resilience by losses and recovery. (Based on Torabi et al. 2015)
where Q is the total amount of items the manufacturer needs from the supplier
(i.e., the material shortage due to the disruption) and T is the length of the recovery
process (. Fig. 4.2).
Consider a numerical example. A supply chain experiences a disruption on June
23, 2020, caused by a supplier disruption due to the COVID-19 pandemic which is
the day #175 in the year 2020. Due to the disruption, a shortage of materials of
140 units is observed. The disruption is expected to be recovered in 130 days.
During the disruption period, the material shortage should be compensated by
means of redirecting the material flows to a backup supplier. The firm considers
two alternative backup suppliers, A and B. Supplier A is capable of delivering
20 units within next 25 days after the disruption, 30 units within next 15 days,
40 units within next 30 days, and 50 within next 40 days. Supplier B can deliver
70 units within next 10 days after the disruption and 70 units within next 20 days.
55 Compute resilience for both supplier A and supplier B cases.
55 Which supply chain recovery strategy would entail a high resilience: supplier A
or supplier B?
RE ¢ 10000
RE ( supplier A ) = 1 - = 1- = 1 - 0.55 = 0.45
Q ´T 140 ´ 130
RE ¢ 2800
RE ( supplier B ) = 1 - = 1- = 1 - 0.15 = 0.85
4 Q ´T 140 ´ 130
We can observe that the recovery strategy with redirecting material flow to supplier
B implies a higher supply chain resilience.
Ojha et al. (2018) developed a metric to quantify resilience as a measure of
service level loss after a disruption. Suppose there are n nodes (suppliers) in the
supply network, and the resilience index of node n denoted by RIk is measured by
Eq. (4.5):
wn æ SL ö
å w= w ç1 - SLkw ÷
RI k = 1 - è
0
k0 ø
(4.5)
( n 0)
w - w
where w0 and wn are the weeks when disruption occurs at the supply chain node and
the time when disruption ends plus the time to recover from the disruption. SLk0
and SLkw are the service levels of node k prior to and after the disruption. The
similarity that can be observed across these two measures, proposed by Torabi
et al. (2015) and Ojha et al. (2018), is that resilience is calculated by 1 minus frac-
tion of loss, so both metrics are bounded between 0 and 1. Torabi et al. (2015)
measured the loss of supplier capacity, while Ojha et al. (2018) considered the loss
of service level.
Ivanov et al. (2018) developed a bi-criteria method using attainable sets from
control theory to measure supply chain resilience as a reaction to variations in both
supply chain design and recovery control policies. Their resilience index is calcu-
lated as the area of intersection of two rectangles, i.e., an approximated attainable
set and the extremal limits of two performance indicators, e.g., service level and
profit (see . Fig. 4.3).
The first (gray) rectangle is constructed on the basis of the extremal (e.g., mini-
mum or maximum) values of the performance indicators, e.g., the minimum ser-
vice level for a supply chain. After running the control algorithm with different
recovery strategies for different execution scenarios, different attainable sets (i.e.,
the sets that include all possible performance outcomes for different scenarios – the
blank rectangles in . Fig. 4.3). The greater the intersection region of the two rect-
angles, the less resilient is the supply chain. Ideally, the square of intersections of
the two rectangles should be zero, meaning that a supply chain is capable of with-
standing to all disruption scenarios considered. The larger the distance between the
two rectangles, the more unnecessary (i.e., excessive) redundancy the supply chain
contains.
4.1 · Measures of Supply Chain Resilience
99 4
a b
J2 J2
Approximated
attainable set
Approximated
attainable set
Area of
Net profit
Net profit
resilience loss
Jb1 Jb1
.. Fig. 4.3 Different resiliencies of the SC structures: (a) a non-resilient case and (b) a resilient case
(Ivanov et al. 2018)
Scenario 1 42 11 0 37 12 0 8
6
Scenario 2 40 10 0 35 9 0
Profit
4
Scenario 3 38 7 0 29 7 1
2
Scenario 4 27 5 9 18 5 36 0
0 5 10 15 20 25 30
Sales
zz Network design I:
Scenario 1: profit = 11,000; sales = 42,000/Scenario 2: profit = 10,000; sales = 40,000/
Scenario 3: profit = 7000; sales = 38,000/Scenario 4: profit = 5000; sales = 27,000
higher the RIX value, the lower the resilience. We note that sales and profit num-
bers of the computations shown above display the worst-case outcomes for each
uncertainty scenario. In reality, there are multiple outcomes of possible attainable
performance in each scenario subject to variations of uncertainty factors and
recovery policies. These sets of the outcomes form attainable sets that are then
approximated (e.g., in form of rectangles). The selection of a particular point on
the approximated attainable set (i.e., best case, worst case, average) depends on the
risk aversion of a decision-maker.
4 >>Important Observation
How to use the resilience estimates? First, the resilience metrics can be used to com-
pare resilience of different supply chain designs or the effectiveness of some recovery
strategies. Second, the metrics are of value when comparing the firm’s resilience over
several years. Third, based on the resilience metrics, one can judge whether a resil-
ience of a particular supply chain is acceptable/non-acceptable. In order to identify
the “acceptable” values or ranges of resilience (say 0.95 or between 0.93 and 0.98),
the latter analysis is usually supported by an associated performance analysis, e.g.,
demand fulfillment or service level. If a supply chain is capable of achieving some
desired service level under some disruption scenarios and recovery actions, the resil-
ience values can be considered satisfactory.
Kinra et al. (2020) extended the TTR/TTS approach toward ripple effect assess-
ment. Their model is based on possible maximum loss rather than on the probability
of a disruption occurrence. We will consider the Kinra’s et al. model in 7 Sect. 4.4.
The concept of supply chain adaptability can be formulated in line with Arkhipov
and Ivanov (2011) and Ivanov (2018)) as follows.
Definition
Adaptability is the structural property that characterizes the decoupling or branch-
ing degree of supply chain processes and the possibilities of process adaptation to
a real execution environment.
Supply chain adaptability concept is close to the supply chain structural control-
lability approach modeled as spanned cactus (Liu et al. 2011). Supply chain adapt-
ability is a kind of general (abstract) characteristic, like the concept of uncertainty
itself. Therefore, its quantitative estimation should be perceived as a relative mea-
sure that has a local value in the context of the considered supply chain design
problem. Due to this consideration, various approaches to the specified measure
construction exist based on subjective considerations.
We use supply chain adaptability concept for estimating the supply chain’s abil-
ity to compensate for the uncertainty level of its functioning conditions (predicted
for a corresponding time interval) by using a multi-variant approach while select-
ing the trajectories of process realization development. If uncertainty conditions
are formed under the influence of uncontrollable environmental factors, the adapt-
ability is a kind of process and structure variety that is introduced into the supply
chain to maintain the possibility of choosing alternative trajectories, thus ensuring
flexibility to cope with disruptions (Ivanov et al. 2019a, b, 2021; Ivanov 2020b;
Ivanov and Dolgui 2020).
102 Chapter 4 · Measuring Supply Chain Resilience
Taking into account the semantic affinity of uncertainty and adaptability con-
cepts, we explain in this section how to use the entropy measure applied in statistical
physics and the theory of information.
Definition
Entropy is a measure of a complex system state’s relative variety in the quantita-
tive estimation of adaptation potential (Shannon and Weaver 1963; Lim 2007).
4
Allesina et al. (2010), Isik (2010), Levner and Ptuskin (2018), and Hosseini and
Ivanov (2019) applied the entropy concept to analyze supply chain complexity and
structural dynamics.
c d
N=10
hypothesis about the choice of equally probable operations at each planning stage
is accepted. As a result, an estimation can be received that indirectly characterizes
the network adaptation potential. Let us consider a simple example as shown in
. Fig. 4.5a, b.
104 Chapter 4 · Measuring Supply Chain Resilience
Let a supply chain have the structure presented in . Fig. 4.5a. For this network,
the entropy index is Н = 1.74 according to Eq. (4.6). There are two options to tran-
sit from the node of the initial stage to the 1st stage. Therefore, the probability is 0.5.
In considering the upper node of the 1st stage, there are four alternative links to
reach the 2nd stage. Therefore, the probability will be 0.25. Hence, the selection
probability of each of the four ways through the upper node of the 1st stage is
p = 0.5 × 0.25 = 0.125. Now, the logarithm from this probability can be taken as
follows: ln0.125 = 2.08. We get 0.125 × 2.08 = 0.26. Since four alternative links exist,
4 0.26 × 4 = 1.04. Analogously, in considering the bottom node of the 1st stage, there
are two alternative links to reach the 2nd stage. Therefore, the probability will be 0.
5. Hence, the selection probability of each of the two ways through the upper node
of the 1st stage is p = 0.5 × 0.5 = 0.25. Now, the logarithm from this probability can
be taken: ln0.25 = 1.39. We get 0.25 × 1.39 = 0.35 since two alternative links exist,
0.35 × 2 = 0.7. The sum of the two nodes in the 1st stage is, therefore, 1.04 + 0.7 = 1.74.
The maximum value for a network with a set number of supply chain elements
at each stage will be achieved when all the variants of transitions from i-operation
elements to (i + 1)-operation elements are admissible and equally probable (see
. Fig. 4.5b). For this case, we will have Hmax = 2.30. For a network that has a more
complex structure (see . Fig. 4.5c), the entropy index is Н = 4.52.
In analyzing a real supply chain, it is useful to have relative (normal) estima-
tions Н(о) as well as absolute estimations of a variety level (entropy) Н, previously
having constructed a supply chain with the same quantity of elements of planned
period stages (network knots), but with all the possible links between them and
equal probabilities of all the trajectories: Н(о) = Н/Нmax. Absolute estimations allow
us to compare supply chain structures that differ in the quantity of supply chain
stages (the number of stages of suppliers, production, distribution, wholesalers,
and retailers), the quantity of elements at each supply chain stage, and a variety of
links in between elements. The relative estimations characterize, in essence, the
degree of affinity between the varieties of links in a concrete supply chain to the
maximum value.
However, the index (4.6) does not reflect one important supply chain structural
characteristic – the maintenance of a high service level, which is important for the
adaptation possibilities for the execution of customer orders. Processes in the sup-
ply chain are always carried out under increased uncertainty. Therefore, supply
chain adaptation possibilities need to increase as supply chain process execution
nears the customer. The entropy index (4.6) does not reflect this idea. Let us intro-
duce another supply chain structure, but with the same number of elements and
links (see . Fig. 4.5c).
Indeed, the estimations calculated for networks, presented in . Figs. 4.5b, c,
are identical and equal Н = 2.30. At the same time, these two structures essentially
differ because the choice possibilities change in different ways while going down-
stream the networks. It can be supposed that the heuristic estimation of the choice
variety value for the supply chain presented in . Fig. 4.5b should be higher, as it
has more choice possibilities at the downstream stages than the supply chain shown
in . Fig. 4.5c. As such, we consider this issue and extend the present formulation
in the next section.
4.2 · Complexity Theory: Entropy-Based Assessment...
105 4
4.2.3 uantitative Assessment of Supply Chain Adaptability:
Q
An Extension
An extended estimation can be received after some transformations of Eq. (4.6),
considering each trajectory as a number of consecutive operational blocks (supply
chain units) and, accordingly, presenting the i-trajectory selection probability as
the multiplication of its units’ probabilities pi = pi1 x pi2 x …..x piТ. Eq. (4.6) will be
transformed as follows in Eq. (4.7):
N
H = -å pi1 xpi 2 x ¼ xpiT ln ( pi1 xpi 2 ¼ xpiT )
i =1
N
= å pi1 xpi 2 x ¼ xpiT ln ( pi1 xpi 2 ¼ xpiT )
i =1
æ ö
ç ÷ (4.7)
N ç T -1 T -1 T -1 ÷
= å ç Õ pik xpil ln pil + Õ pik xpi 2 ln pi 2 +¼+ Õ pik xpik ln pik ÷
i =1 ç k = 0 k =0 k =0 ÷
ç k ¹t k ¹t k ¹t ÷
çN ÷
è T -1 T -1 ø
æ ö
= åå ç Õ pik ÷ x ( pit ln pit )
i =1 t = 0 è k = 0 ø
æ ö
N T -1 ç T -1 ÷
H w = -ååwt ç Õ pik ÷ x ( pit ln pit ) (4.8)
i =1 t = 0 ç k =0 ÷
ç k ¹t ÷
è ø
The index of weighted variety, calculated using Eq. (4.8), can also be named the
supply chain absolute adaptation potential; we designate it as А and А = Нw. For a
supply chain with the maximum value of weighted entropy (this supply chain has
106 Chapter 4 · Measuring Supply Chain Resilience
.. Table 4.1 Examples of supply chain variety and adaptation potential estimations for
different network structures (weights wt considered in direct proportion to the t interval
number)
the same quantity of actions as the initial network and the maximum number of
equally probable trajectories), this formula becomes simpler as shown in Eq. (4.9).
T -1
H wmax = - åwt ln pit (4.9)
t =0
Let us consider the following estimation as the indicator of the supply chain’s rela-
tive adaptation potential (Eq. 4.10):
Hw
A( ) = max
0
(4.10)
Hw
In order to illustrate the proposed technique, we introduce several numerical exam-
ples. Supply chain structure variants are presented in . Fig. 4.5; the necessary
estimations of network variety and adaptation potential are shown in . Table 4.1.
As it can be observed, the adaptation potential index is sensitive to a change in
the supply chain knots (elements), the allocation of these knots within planning
period intervals, and the variety of variants in choice possibilities. Changes in sup-
ply chain potential estimations correspond to intuitive considerations about this
indicator’s dependence on the specified parameters.
Let us pay attention to absolute and relative potential estimation characteristics
(see previous remarks on these indicators). In particular, we would like to note that
the relative estimations with the maximum variety of links are identical and equal
to 1, no matter how many stages and actions it has. This fact limits their applica-
tion possibilities to a certain extent, but nevertheless they still keep their analytical
role, supplementing absolute adaptation potential estimations. The proposed sup-
ply chain adaptation potential indicators can be used as criteria for selecting supply
chain structures at the resilient network design stage.
4.3 · Measuring Supply Chain Resilience...
107 4
4.3 easuring Supply Chain Resilience Using Bayesian
M
Networks
While development of resilient supply chain designs is desirable and indeed critical
to withstand the disruptions, exploiting the resilience capabilities to achieve the
target performance outcomes through effective recovery is becoming increasingly
important. A more detailed vulnerability analysis can be achieved when the impacts
of disruption caused by the suppliers’ suppliers (tier 2 and tier 3 suppliers) are
quantified, i.e., considering the disruption propagation or ripple effect in the s upply
chain. We explain in this section a measure of supply chain resilience with a multi-
stage assessment of suppliers’ proneness to disruptions and test the developed
notion of supply chain resilience as a function of supplier vulnerability and recov-
erability using a Bayesian network (BN) and considering the ripple effect (Hosseini
and Ivanov 2020).
BNs are structured based on Bayes’ theorem and conditional probability theory.
Bayes’ theorem enables us to reason in a logical, rational, and consistent way by
computing the posterior probability of input data, given new data input in a spe-
cific state. Bayes’ theorem can be represented as shown in Eq. (4.11):
P ( D|q ) P (q )
P (q |D ) = (4.11)
P (D)
For data and variable θ, P (q |D ) is the posterior probability of θ in light of the
observed data , P ( D|q ) is the likelihood function of the probability of new
data given θ, (q ) is prior (unconditional) probability distribution of param-
eter θ, and P ( D ) is marginal likelihood (evidence). With the use of Bayes’ rule
and in light of the data, we are able to update our beliefs about the variable θ to a
posterior belief. BNs can be used for representing the impact of evidence on exist-
ing data through probabilistic expressions describing the causal relationship among
variables (Pearl 1998, 2000; Fenton and Martin Neil 2012).
To mathematically represent the structure of BN, consider a DAG (directed
acyclic graph) represented by G, where G = (V, E) and V = {X1, X2, …, Xn} repre-
sents a set of random variables (nodes) and E is a set of arcs (Hosseini et al. 2020).
An outgoing arc from Xi to Xj indicates the dependency or causal relationship
between these two variables, such that Xi is the parent of Xj and Xj is the child of
Xi. Generally speaking, there are three classes of nodes in BNs: (i) nodes without
any child that are called leaf nodes, (ii) nodes without any parent nodes that are
108 Chapter 4 · Measuring Supply Chain Resilience
4 X2 X1 X4
called root nodes, and finally (iii) nodes with parent and child nodes that are called
intermediate nodes. For the example given in . Fig. 4.6, X2 and X3 are the root
nodes, X4 is the leaf node, and X1 is the intermediate node.
The dependency between a child node and its parent nodes can be quantified by
a conditional probability table (CPT). For nodes without any parents, uncondi-
tional probabilities or prior probabilities are specified.
The dependencies among variables of a BN can be quantified by conditional
probability distributions. Consider a BN with n variables X1, X2, …, Xn. The gen-
eral expression for joint probability distribution can be represented as shown in Eq.
(4.12):
P ( X 1 ,X 2 , ¼ ,X n ) = P ( X 1 | X 2 , X 3 , ¼ , X n ) P ( X 2 | X 3 , ¼ , X n ) ¼
P ( X n -1|X n ) P ( X n ) (4.12)
Equation (4.12) can be rewritten as Eq. (4.13):
n
P ( X 1 ,X 2 , ¼,X n ) = ÕP ( X i |,X i +1|, ¼|,X n ) (4.13)
i =1
The joint probability distributions of BN represented in Eq. (4.13) can be further
simplified based on the knowledge of which parent nodes belong to which child
node. For example, if node X1 has exactly two parents, X2 and X3, then P(X1| X2, …, Xn)
can naturally be substituted with P(X1| X2, X3). As such, the joint probability distri-
bution can be simplified to Eq. (14).
n
P ( X 1 ,X 2 , ¼,X n ) = ÕP(X i |parents ( X i )) (4.14)
i =1
The full joint probability distribution, for example, illustrated in . Fig. 4.6 can be
written as shown in Eq. (4.15):
P ( X 1 , X 2 , X 3 ,X 4 ) = P ( X 2 ) P ( X 3 ) P ( X 1 | X 2 , X 3 ) P ( X 4 | X 1 )
(4.15)
In this case, we need the conditional probability (from a CPT) for P(X1| X2, X3) and
P(X4| X1) and unconditional probability (or prior probability) for P(X2) and P(X3).
The marginal distribution of each variable (node) can be computed by the margin-
4.3 · Measuring Supply Chain Resilience...
109 4
alization of the joint probability distribution. For example, the formula for margin-
alization of variable X2 is given in Eq. (16):
P( X2 ) = å P ( X 2 ) P ( X 3 ) P ( X 1 |X 2 , X 3 ) P ( X 4 |X 1 ) (4.16)
X1 , X 3 , X 4
Note that marginalization is a distribution operation over combinations. This implies
that global joint probability can be performed by marginalizing the local node prob-
ability. For the example given in . Fig. 4.6, P(X2) can be calculated as (4.17):
æ æ æ ööö
P ( X 2 ) = ç åP ( X 3 ) ç åP ( X 1|,X 2 |,X 3 ) P ( X 3 ) ç åP ( X 4 |X 1 ) P ( X 1 ) ÷ ÷ ÷ (4.17)
ç X3 çX çX ÷÷÷
è è 1 è 4 øøø
The relationship q → r represents the material flow supplied from supplier q to sup-
plier r. This also means that a disruption at supplier q can cause a disruption at
supplier r, as materials flow from supplier q to supplier r. While an upstream sup-
plier can disrupt a downstream supplier (e.g., q disrupting r), it is assumed that a
disrupted supplier downstream will not disrupt an upstream supplier.
Represent supplier node i with Xi in a supply network with n suppliers, i = 1, …,
n and OEM is denoted by O (this is also the target node of the supply network).
Each supplier Xi can be either operational or disrupted. Generally, node Xi, whose
parents G are in state g, is in state x with the probability P(x| g) and åP ( x|g ) = 1
x
for every realization of the states of parent nodes. The conditional probabilities
P(x| g) are called risk parameters. Assume that each node has two binary states
(True or False). Therefore, there are 2n risk parameters at a node with n parents. It
should be noted that True represents disrupted state while False represents opera-
tional states.
Consider a simple BN model consisting of OEM (node O) and two supplier
nodes (X1, X2) as represented in . Fig. 4.7. Node O is conditioned on supplier
nodes X1 and X2, which means that disruption of either supplier can cause the dis-
ruption of the OEM. The prior probability of each supplier is assumed to be 3%,
suggesting each supplier has a 3% likelihood of failing to supply the
OEM. Disruption of a supplier induces disruption at the OEM with a specific
probability. . Table 4.2 lists the conditional probabilities of disruption at the
OEM due to the i- supplier disruption.
According to . Table 4.2, the probability that the OEM is disrupted if supplier
1 is disrupted and supplier 2 is operational is 0.12. This probability changes to 0.21
when both suppliers are disrupted.
The prior and joint distribution probabilities at supplier and the OEM are rep-
resented in . Fig. 4.8. The marginal probability of an OEM disruption is 1.54%,
calculated from the conditional probabilities illustrated in . Table 4.2 and based
on Eq. (4.17).
110 Chapter 4 · Measuring Supply Chain Resilience
X1 (supplier 1)
O (OEM)
4
X2 (supplier 2)
X2 (supplier 2)
3.00% True
97.00% False
O (OEM)
1.54% True
98.46% False
4.3 · Measuring Supply Chain Resilience...
111 4
Note that the CPT of an OEM disruption as represented in . Table 4.2 requires
23 = 8 risk parameters, as there are n = 3 nodes, where each node has two binary
states (True or Disrupted) vs. (False or Operational). In practice, constructing a
CPT from an OEM disruption can be challenging because the OEM may receive
materials from many suppliers, meaning that the disruption of an OEM is condi-
tioned on the disruption of many suppliers. To deal with this issue, we utilize the
noisy-OR model (Pearl 1998) to build the causal relationship between disruption at
parent and child nodes in large supply networks. The main advantages of utilizing
noisy-OR model include the following: (i) it significantly reduces the computa-
tional efforts in large supply networks, particularly when OEM is conditional
based on dozens of suppliers, and (ii) the number of required elicitation probabili-
ties is much lower relative to a BN built using a CPT.
Suppose that there are n suppliers, X1, X2, …, Xn, that affect the status of O
(OEM). Assume that there is a probability associated with O being disrupted when
one and only one Xi (supplier i) is disrupted and all suppliers other than Xi are oper-
ational. The noisy-OR model for the O node can be expressed as shown in Eq. (4.19):
(
NoisyOR X 1 ,vO| X1 ,X 2 ,vO| X 2 , ¼,X i ,vO| X i , ¼,X n ,vO| X n ,qO ) (4.19)
(1 − η1)η2 = 0.039
g 2 = { X 1 ,X 2 } ( )
1 - (1 - qO ) 1 - vO| X 2 = 0.573
η1η2 = 0.001
g 4 = { X 1 ,X 2 } ( )( )
1 - (1 - qO ) 1 - vO| X1 1 - vO| X 2 = 0.74
X2 (supplier 2)
4.00% True
96.00% False
O (OEM)
8.20% True
91.80% False
The vulnerability index, VO| X i , quantifies the disruption risk increase at the
OEM (marginal disruption probability) when supplier i ( X i ) is disrupted. To cal-
culate FO ( X i ) , we enter evidence describing supplier i and set its state to be True.
This means that we make an observation about supplier i when it is disrupted and
update the marginal probability of OEM through propagation (21).
(
VO| X i = FO ( X i ) - FO ) (4.21)
The recoverability index O| X i measures the decrease in disruption risk (marginal
disruption probability) when supplier i is fully operational. To calculate O| X i , the
state of supplier i is changed to 100% False, and the impact is propagated BN to
determine the disruption risk of the OEM. In essence, the recoverability index
quantifies the effect on the disruption risk at the OEM when supplier i is fully
operational. The recoverability index is calculated as shown in Eq. (4.22):
O|Xi = ( FO - FO ( X i ) ) (4.22)
The resilience value of the OEM corresponding with supplier i is calculated as the
ratio of the recoverability and vulnerability indices (4.23):
114 Chapter 4 · Measuring Supply Chain Resilience
(4.23)
To understand how the resilience index is calculated, consider an OEM that is con-
ditioned on four suppliers (X1, X2, X3, X4). The prior disruption probabilities of the
four suppliers are η1 = 3 % , η2 = 4 % , η3 = 5 % , and η4 = 6%, respectively. The
disruption probabilities of the OEM, given the disrupted suppliers, are
VO| X1 = 31.04%, VO| X 2 = 35.3%, VO| X 3 = 39.56%, and VO| X 4 = 43.83% , respectively.
4 The probability of the leak variable associated with OEM is θO = 2%. The disrup-
tion risk or marginal disruption probability of the OEM is then FO = 9.53%, as
illustrated in the baseline BN model in . Fig. 4.10.
To calculate how much the disruption risk probability of the OEM increases if
supplier i is disrupted, we set the value of each supplier to True (True state = 100%)
and propagate the impact of this observation throughout the BN to measure the
impact of this observation on the OEM’s risk of disruption. For example, Table 16
shows that the disruption risk of the OEM is FO ( X 1 ) = 40.57% when we have
evidence that supplier 1 is fully disrupted. VO| X1 is calculated as the difference
between FO and FO ( X 1 ) as calculated in Table 16. The vulnerability index for sup-
plier 1 is 31.04%, which means that the disruption risk of the OEM increases by
31.04% when supplier 1 is disrupted or that the vulnerability of the OEM with
respect to supplier 1 is 31.04%. For suppliers 2, 3, and 4, the vulnerability indices
are 35.3%, 39.56%, and 43.83%, respectively.
A simple comparison between these four suppliers indicates that
VO| X 4 > VO| X 3 > VO| X 2 > VO| X1 , suggesting that a disruption at supplier 4 increases
OEM’s risk of disruption. As such, supplier 4 plays a key role in determining the
OEM’s level of disruption risk. The vulnerability index value can be obtained by
Supplier 3(X3)
.. Fig. 4.10 BN model, prior probabilities of four suppliers, and marginal disruption probability of
OEM (Hosseini and Ivanov 2020)
4.3 · Measuring Supply Chain Resilience...
115 4
performing inference from cause (supplier i) to effect (OEM) by setting evidence
that supplier i is 100% disrupted (True state) and measuring the resulting impact of
this observation on the posterior distribution probability of the OEM. Considering
the illustrative example of the BN model in . Fig. 4.10, the probability of the
OEM being disrupted under normal conditions is FO = 9.53%.
A vulnerability index comparison across the four suppliers highlights the
importance of reducing the probability of disruption at supplier 4 by analyzing
the threats that can lead to its disruption and developing a pre-disaster strategy
(e.g., extra inventory prepositioning, fortifying the physical location of sup-
plier) and post-disaster resilience strategies (e.g., contracting with backup sup-
pliers).
The recoverability of the OEM with respect to each supplier is calculated
using Eq. (4.22). To calculate FO(Xi), we set the state of each supplier i to their
False states by assuming that supplier i is 100% operational and propagate this
impact to the risk of disruption at the OEM. The recoverability index of the
OEM with respect to each supplier i is calculated in . Table 4.4. Finally, the
resilience of the OEM with respect to each supplier i is calculated using Eq.
(4.23).
Finally, we illustrate the resilience metric using a complex, real-life example.
Auto supply networks can be very large since OEMs can have somewhere between
50 and 500 suppliers: analyzing multi-tier supply networks with a large number of
suppliers and a causal relationship between suppliers can be a difficult task. We
utilize the noisy-OR formulation to lessen the computational burden of analyzing
a BN developed for the 29 suppliers of this OEM supply network, as illustrated in
. Fig. 4.11.
Using our method, we could both identify resilience of the OEM and cluster
the suppliers as shown in . Fig. 4.12.
The multi-quadrant chart offers us a convenient way to identify which suppli-
ers are important, but less resilient. This plot is divided into four quadrants. The
most critical suppliers are the ones located in the upper left quadrant (suppliers 2,
9, 19, 21, 22, 26), since they are highly important with regard to the OEM, but not
sufficiently resilient. As such, the OEM can request them to improve their pre-
disaster and post-disaster resilience strategies to reduce the risk of disruption
propagation throughout the supply network. Suppliers located in the upper right
quadrant are also considered important but probably do not need major revisions
in their resilience strategies. Finally, suppliers located in the lower left quadrant
lack resilience, but are not as important as other less resilient suppliers. Such an
analysis allows for identifying critical suppliers and developing respective resil-
ience strategies.
4
116
.. Table 4.4 The calculations of vulnerability, recovery, and resilience index of BN model given in . Fig. 4.10
Supplier 1 FO − FO(X1)=
FO ( X 1 ) - FO =
9.53 % − 8.57 % = 0.96%
40.57 % − 9.53 % = 31.04%
Supplier 2 FO − FO(X2)=
FO ( X 2 ) - FO =
9.53 % − 8.05 % = 1.48%
44.83 % − 9.53 % = 35.3%
Chapter 4 · Measuring Supply Chain Resilience
Supplier 3 FO − FO(X3)=
FO ( X 3 ) - FO =
9.53 % − 7.44 % = 2.09%
49.09 % − 9.53 % = 39.56%
Supplier 4 FO − FO(X4)=
FO ( X 4 ) - FO =
9.53 % − 6.73 % = 2.8%
53.36 % − 9.53 % = 43.83%
4.3 · Measuring Supply Chain Resilience...
117 4
X21
X5
X4 X7
X2 X1 X29
OEM (0)
X24
X11 X19
.. Fig. 4.11 The BN model of center console supply network (Hosseini and Ivanov 2020)
100%
Supplier 7 Supplier 14
90% Supplier 27
Supplier 5
Supplier 2
80% Supplier 26
Supplier 13
Supplier 22
70% Supplier 25
Percentile of Importance
Supplier 11
Supplier 21
60%
Supplier 18
Supplier 9
50.00% Supplier 19 Supplier 12
50%
Supplier 24
Supplier 16
40%
Supplier 8
Supplier 23 Supplier 10
20% Supplier 1
Supplier 20
Supplier 4
10% Supplier 28
Supplier 29 Supplier17
Supplier 3
50.00%
0%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Percentile of Resilience
.. Fig. 4.12 Quadrant plot analysis of percentile resilience versus percentile of importance (Hosse-
ini and Ivanov 2020)
118 Chapter 4 · Measuring Supply Chain Resilience
While the resilience assessment shown in 7 Sect 4.2 is based on probabilistic the-
ory assuming that we can fairly estimate likelihood of disruptions at different sup-
pliers, in this section, we explain a non-probabilistic approach based on supplier
risk exposure assessment. Kinra et al. (2020) proposed a new model to measure the
ripple effect of a supplier disruption based on possible maximum loss. The con-
structed ripple effect exposure (REE) model quantifies the ripple effect, compre-
4 hensively combining features such as impacts of financial, customer, and
operational performance, consideration of multi-echelon inventory, disruption
duration, and supplier importance.
. Figure 4.13 shows the computational logic of the REE model.
We introduce the following notations in line with Kinra et al. (2020):
55 REE is the ripple effect exposure of the supply chain
55 𝑆𝐸𝑖 is the supplier exposure
55 𝑖 is the supplier index, 𝑖∈[1,…,𝑛].
55 𝑗 is the product index, 𝑗∈[1,…,].
55 𝑙𝑗 is the part needed for product 𝑗, 𝑙∈[1,…,𝑗].
55 𝑞𝑙i, is the number of units of part 𝑙 sourced from supplier 𝑖 at stage k or the
number of missing parts resulting from supplier disruption when considering
stage k + 1 according to downstream disruption propagation in the supply
chain.
55 Q𝑙i, is the total number of units of part 𝑙.
55 m is the total number of units of part 𝑙𝑗 sourced across all suppliers.
55 𝑉𝑗 is the demand for 𝑗.
.. Fig. 4.13 REE model for ripple effect measurement (Kinra et al. 2020)
4.4 · Ripple Effect Exposure Quantification
119 4
55 𝜋𝑗 is the profit margin for product 𝑗 in % of revenue.
55 𝑝𝑗 is the sales price of product 𝑗.
55 𝑐l is the business interruption time.
55 𝐼𝑘 is the inventory (measured, e.g., as weeks of supply) held at process step 𝑘.
55 𝑘 is the supply chain echelon, 𝑘∈[1,…,𝑗].
qli
BIVlj =
Ql
(
×V j × p j × p j ) (4.25)
qli
The term in BIV shows the supplier importance ratio (SIR). The higher the
Ql
supplier spending, the higher the SIR and the higher the BIV. The second part of
the BIV computation is related to the lost sales due to the supplier disruptions.
The second factor in determining the PML in the model is RBIT. RBIT consists
of two separate parts, i.e., the BIT (business interruption time) and BCT (business
continuation time). Their meaning is close to TTR/TTS time introduced by Simchi-
Levi et al. (2015). BIT is the amount of time for which the supplier is expected to be
unavailable due to a disruption and during which no supply substitute can be estab-
lished. BCT is the amount of time the focal company can continue to meet demand
in spite of a disruption in supply, e.g., using some inventory on-hand. Thus, RBIT
considers the maximum time the system is affected, given some recovery strategies.
The model sets negative RBIT values to 0 in order to ensure that instances with
BCT > BIT, i.e., making the RBIT negative, are not included as negative PML val-
ues, i.e., profit gains. The computation of the RBIT is outlined in Eq. (4.26).
((
RBITlj = max BITlj - BCTlj ,0 ) ) (4.26)
Now we compound the Eqs. (4.24)–(4.27) to the SE and REE indexes (Eq. 4.27).
s m ææ q ö æ æ sj ööö
REE = åSE k ; SEi = å ç ç li × V j × p j × p j ÷ × max ç 0; ç c - ålk ÷ ÷ ÷ , (4.27)
j =1 j (
l Î 1,¼,rj ) ç Ql ç ç ÷÷
k =1 ø ø ÷
k =1
èè ø è è ø
where, SEs are computed at each supplier. REE extends the analysis toward a
multi-echelon setting. REE is considered as a compounding function for the dis-
120 Chapter 4 · Measuring Supply Chain Resilience
ruption propagation (i.e., the ripple effect) downstream in the supply chain, taking
into account individual SE assessments. Depending on the decision-maker’s risk-
aversion, REE can reflect either the total impact, as a worst-case scenario where all
suppliers would experience a disruption, or the average impact among all possibly
disrupted suppliers.
zz Practical Example
A three-stage retail supply chain with five suppliers, one distribution center (DC),
4 and two customers with equal demand is considered. Each supplier delivers exactly
one product (i.e., water, drinks, juice, yogurt, and milk) to the DC, and the DC
delivers these products to customers. Analyze the REE and PML with consider-
ation of total impact and the importance of each homogeneous node in the supply
network. Data for the analysis and computations of REE/SE are shown in
. Fig. 4.14.
. Figure 4.14 displays five supplier-product combinations with different aver-
age disruption durations (BITs), supplier importance ratios, average inventory in
terms of days of supply, and profits based on analysis of historical company data
over 3 years. The average daily demand of the DC is 1310 boxes for water, 1900
boxes for drinks, 980 boxes for juices, 1200 boxes for yogurt, and 850 boxes for ESL
(extended shelf life) milk. Average inventory in supplier data refers to the inventory
of the supplier’s products at the DC. Analogously, average inventory in the DC
data refers to the inventory of the DC’s products at the customers.
We first compute SEs on the supplier level. PML equals 0 for the two cases
(water and yogurt) because average inventory enables compensation after the dis-
.. Fig. 4.14 Input data and REE/SE computation example (Kinra et al. 2020)
4.5 · Network Design Characteristics and Their Relations...
121 4
ruption during the BIT (i.e., average inventory in days > BIT and RBIT = 0). For
drinks, juices, and ESL-milk, PML is positive and its total is $769,200. As such, the
total SE (i.e., the case if all suppliers would be disrupted simultaneously) is
$769,200.
Considering the ripple effect of the supplier disruptions, we now move to the
DC level. The total daily demand at the customers (i.e., the supermarket stores) is
2620, 3800, 1960, 2400, and 1700 boxes for water, drinks, juices, yogurt, and ESL-
milk, respectively. Since, in reality, two DCs deliver to the stores, the average daily
demand at the DC considered is lower (1310, 1910, 980, 1200, and 850 boxes,
respectively). The disruption-driven shortage is identical to those in the upper part
of the computational sheet. The REE of the supply chain is $1,027,650, which is
the maximum possible financial loss that our supply chain can suffer from supplier
disruptions.
In other words, REE quantifies the costs of disruptions for a given level of
resilience (Aldrighetti et al. 2021, Ivanov 2021a, b).
A number of management recommendations can be derived using the REE and
SE indicators. In terms of sourcing strategy, identifying critical suppliers and/or
replacing/re-planning inventory in the supply chain can be recommended in cases
with high REE and SE. At a strategic level, the REE exposure analysis can be used
to determine an improved supplier strategy (e.g., dual/backup supply) by identify-
ing which suppliers will have the greatest impact on performance, when disrupted.
The model can also be applied at the operative level in two ways. First, it can pro-
vide critical information for adjusting inventory placements and levels in the sup-
ply chain, subject to RBIT. Second, using the REE index can enable quick
estimations of possible impacts of disruptions on supply chain performance. Such
estimation can also be useful when deciding on the timing and scale of deployment
of a contingency policy, e.g., the timing of installation of a backup source and its
scope.
1
J1 = ååaij
2 ( n - 1) i j
(4.28)
Reachability coefficient (J2):
ååaij*
i j
4 J2 =
n 2
(4.29)
Connectivity coefficient (J1) characterizes the relation of total arc number to the
minimal arc number when a connected graph with the required number of nodes
can be maintained. The higher the connectivity coefficient, the higher the network
ability to maintain flow continuity in case of disruptions. The coefficient (4.28) is
relevant for the resilience of the supply chain network design since it characterizes
the ability to maintain operations continuity despite the disruptions. Reachability
coefficient (J2) characterizes the ability to achieve all the nodes in the graph
(Eq. 4.29). This coefficient can be interpreted as flexibility of the supply chain
design.
We illustrate using an example. Consider four supply chain design structures as
shown in . Fig. 4.15.
The structures #1–4 are composed of a central distribution center (CDC),
regional distribution centers (RDC), local distribution centers (LDC), and cus-
tomers (C). The resulted coefficients J1 and J2 are presented in . Table 4.5.
The structure #1 is a fully connected graph leading to the highest values of
connectivity, reachability, and centralization. However, such a network design
can also entail high costs and with high coordination complexity. Analysis of
other structures and their performance indicators can support managers in find-
ing a balance between resilience and structural investments. The structure #2
allows for a relatively high flexibility (J2) despite the absence of both LDCs in the
network design. This can be an indication for management to reconsider the
necessity of having the LDC in the supply chain network. We can also observe
that the absence of the CDC (structure #3) significantly reduces connectivity (J1)
and flexibility (J2). A reduction in transportation links between the RDCs and
customers (structure #4) also negatively influences the connectivity and flexibil-
ity of the supply chain network making these network designs potentially exposed
to disruptions.
4.5 · Network Design Characteristics and Their Relations...
123 4
Structure #1
X1 X3 X5 X7 X9 X11
C1 C2 C3 C4 C5 C6
X2 X4 X8 X10
LDC RDC RDC LDC
X6
CDC
Structure #2
X1 X2 X4 X7 X8 X9
C1 C2 C3 C4 C5 C6
X3 X7
RDC RDC
X5
CDC
Structure #3
X1 X2 X4 X5 X7 X8
C1 C2 C3 C4 C5 C6
X3 X6
RDC RDC
Structure #4
X1 X4 X5 X7 X8 X10
C1 C2 C3 C4 C5 C6
X2 X6 X9
LDC RDC RDC
.. Fig. 4.15 Supply chain network design structures (Sokolov et al. 2016)
124 Chapter 4 · Measuring Supply Chain Resilience
Structures J1 J2
1 2.2000 1.0000
2 1.2500 1.0000
3 0.8571 0.5313
4 4 0.7778 0.3400
4.6 Discussion
This chapter was devoted to supply chain resilience quantification and measure-
ment. We learned how to assess and quantify supply chain resilience using different
techniques. Measuring supply chain resilience is important in different settings.
First, if we have quantitative measures to assess supply chain resilience, we can
compare resilience of different supply chains or different alternative supply chain
designs. Second, resilience measures can be used for comparing resilience of our
supply chains with the competitor’s resilience. Third, we can use resilience mea-
sures to assess our efforts in improving resilience over time. Finally, we explained in
this chapter the existing approaches to supply chain resilience and the ripple effect
measurement.
55 Why is it important to quantify supply chain resilience?
55 Explain probabilistic and non-probabilistic approaches to supply chain resil-
ience measurement
55 How can we assess supply chain resilience using Bayesian networks?
55 What is entropy and how it can be used to quantify?
55 What is the difference between probabilistic and non-probabilistic approaches
to supply chain resilience assessment?
55 Explain the principles and techniques to quantify the ripple effect in supply
chains using supplier risk exposure index
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127 5
Supply Chain
Viability
Contents
References – 143
nnLearning Objectives
In some settings, disruptions in supply chain offer decision-making situations which
go beyond the traditional understanding of resilience. Besides, many supply chains
have a shared supplier base and intersect with each other forming intertwined struc-
tures. In this chapter, we aim at learning the following topics:
55 Understand system-theoretic basics of supply chains as multi-structural dynamic
networks
55 Define the concept of supply chain viability
55 Explain the differences and commonalities between viability and resilience
55 Design a viable supply chain model
5 55 Understand the intertwining of supply chains and its influence on the viability
Additional structures, e.g., energy structure, can be added within specific contents.
The above-mentioned description of supply chains as dynamic systems with struc-
tural changes can be used as a framework for analysis of supply chain viability and
resilience.
5.1 · System-Theoretic Foundations of Supply Chain Resilience…
129 5
Product structure
Process structure
Organizational structure
Technological structure
Logistic structure
Financial structure
Informational structure
.. Fig. 5.1 Multi-structural supply chain dynamics (Based on Ivanov et al. 2010)
►►Example
During the COVID-19 pandemic, supply chain networks have experienced tremendous
structural dynamics. Despite high inventory and backup infrastructures, many SCs
have frequently demonstrated severe shortages, chaotic behaviors, and a high exposure
to the ripple effect during shock events, especially long-lasting events with drastically
increased demands. The COVID-19 pandemic has been a stress test for SCs and revealed
their weak responsiveness to severe demand shocks (Craighead et al. 2020). Attempts
to substitute supply resulted in designing ad-hoc SCs using resources and capacities
of intertwined and even competing networks. Time delays, high coordination efforts,
and long shortage periods have been seen during these adaptive transformations. Since
many suppliers became unavailable due to lockdown measures or bankruptcies, firms
had to adjust the organizational structures of supply networks along with the product
structures to react to demand disruptions. Technological and process structures should
130 Chapter 5 · Supply Chain Viability
also be changed, e.g., when the firms re-purposed their traditional operations to manu-
facturing of new products (e.g., ventilators instead of cars like Ford or hand sanitizers
instead of perfumes like Gucci). Closure of major global harbors leads to redesigning
of the logistics structures. Missing liquidity in supply chains entailed financial structure
dynamics, e.g., by changing the contract schemes. Moreover, frequent cyber-attacks on
the information systems in the supply chain influence the information structures and
brought the issues of cyber-security into the forefront of discussion. ◄
Theoretical underpinning of supply chain resilience can be seen through the lens of
the systems theory as shown in . Tables 5.1 and 5.2.
Analysis of major systems and cybernetics principles such as “requisite variety”
(Ashby 1956), the viable system model by Beer (1981), and complexity in large-
scale systems (Casti 1979) allows for the understanding of supply chain resilience
from systemic risk positions. These principles are used to develop the notion of the
viable supply chain that will be discussed further in this chapter.
Requisite The ability to retain control is deter- Resilient supply chain design using
variety mined by “available” requisite structural and process variety to
variety ensure controllability in different
environments
Viable system VSM is based upon continuous Performance and state monitoring;
model system performance monitoring measuring supply chain resilience in
(failures and successes) to control the viability setting as a balance of
operations executions resilience design and control
Second-order Proactive planning and control; Proactive control and self-adaptation
cybernetics simultaneous modeling of the of the supply chain; integration of
environment and the control object uncertainty at different supply chain
in this environment; feedback- layers; information feedback-based
driven resilience control resilience control
frequently exceeded the resilience scope. Ivanov (2020a) identified four major char-
acteristics of a pandemic that distinguish it from other supply chain disruptions,
i.e., long duration, unpredictable scaling, and uncertain demand and supply.
Moreover, recovery needs to be organized in the presence of disruption and accord-
ing to a significantly changed market and supply environment (i.e., a so called “new
normal”).
An analysis of the extant literature shows that the COVID-19 pandemic has
laid out a set of novel decision-making situations that have not been previously
considered in resilience theory and principally go beyond its scope. In situations
where SCs were literally crumbling, the question no longer concerned bouncing
back and recovering to some “normal” state, but rather how to adapt and survive
in radically changed internal and external conditions. To answer this and many
other related questions, a novel theoretical underpinning is required, which builds
on and extends the supply chain resilience. With regard to the global pandemic
context, we posit that adaptation plays the central role in supply chain operations
during a pandemic, and certain aspects of this pandemic-related context can be
approached using the notion of supply chain viability.
Adaptation in supply chains is as vital for firms as adaptation mechanisms are
for living organisms. Adaptation mechanisms continuously monitor, anticipate,
and adjust to dynamic environments. Similarly, organizations are also exposed to
and affected by changes in environmental and operational factors. In addition,
such systems evolve through adaptation and reconfiguration of their structures,
i.e., through structural dynamics (Ivanov 2018). Adaptation helps to survive and be
viable at a longer timescale (Ivanov and Dolgui 2020b). Recent literature has
offered the concept of supply chain viability, which we consider in this chapter.
132 Chapter 5 · Supply Chain Viability
Viability can be considered a central lens to design and manage supply chains
in the post-pandemic world (. Fig. 5.2).
Initially developed in terms of leanness and agility (and their combination as
leagility), supply chain research has been extended by the perspectives of resilience
and sustainability, followed by the advanced utilization of digital technologies and
Industry 4.0. The current state-of-the-art supply chain management results from a
number of remarkable transformations. In . Fig. 5.3, these transformations are
framed in a historical perspective. Being lean, responsive, and globalized in struc-
tural designs, supply chains have also learned a great deal about how to act in line
with nature and societal interests (i.e., becoming sustainable), how to strengthen
5 their resilience during disruptions triggered by severe natural or man-made disas-
ters, how to recover and manage the ripple effects, and how to utilize the advan-
Triggers;
Lean; Natural and man- Climate changes; society Industry 4.0; Global
responsiveness made disasters and economics data analytics pandemic
Viability
Digitalization
Sustainability
Resilience
Leagility
1990 2005 2010 2015 2020
.. Fig. 5.2 Transformation of supply chain research over time (Ivanov 2020b)
Back to-
Stabilization
normal Stabilization in the ,,new
normal’’ and performance
recovery
Recovery
Supply Chain Resilience: Closed-System View Supply Chain Viability: Open System View
bouncing back to an ,,old normal’’ after a disruption or adaptation to a ,,new normal’’ to survive in radically
the ripple effect to recover a planned performance changed internal and external conditions
.. Table 5.3 Differences between supply chain resilience and supply chain viability
Resilience Viability
>>Important Observation
Viability can be considered in a narrow and broad perspective. In the narrow per-
spective, viability is an extension of supply chain resilience toward survivability
under super disruptions. In the broad perspective, the viable supply chain encom-
passes resilience, sustainability, and leagility angles guaranteeing viability of the
value-adding networks over their whole life cycle and securing providing society with
goods and services.
►►Example
Commonalities and differences between resilience and viability can be illustrated in a
simple format using the following example. In an operational view, we are driving cars
to get faster at some destinations at a short lead-time. Strategically, we are using cars to
stay mobile. If a car breaks down, then it should be repaired. For the time of service, one
can receive another car as a substitute. Then one receives the car back in an old, normal
state. This is a classical resilience profile “disruption – backup – recovery – old normal.”
However, if the car cannot be repaired any more, we should adapt structurally. One can
start using public transportation to stay mobile. Or one can purchase a new car. In both
136 Chapter 5 · Supply Chain Viability
cases, the decisions to adapt are driven by the strategic objective to stay mobile rather
than by the operational objective to get faster at some destination. And this is the viabil-
ity profile: “disruption – performance and structure degradation – adaptation-to-survive
(i.e., to ensure/secure some strategically important service; the mobility) – search for
“new normal” – stabilization in the “new normal” – restoration actions – performance
recovery.” ◄
5 The viable supply chain (VSC) model was proposed to address the issues of
dynamically adaptable and structurally changeable value-adding networks. The
VSC model comprises three major perspectives: a viable SC ecosystem, a multi-
level supply chain network design, and a set of viable supply chain capabilities
(. Fig. 5.4).
Across these there perspectives, the VSC model is based on three cycles – the
leagility cycle, resilience cycle, and survivability cycle – and the transition/adapta-
tion mechanisms between them. We posit that survival and adaptation in confront-
ing such super-disruptive changes require a special supply chain property – the
capability to survive, to remain viable. Mechanisms to adapt seem to be most criti-
cal for healthcare SCs in a pandemic setting; however, little is known about these
adaptation mechanisms.
The VSC model is based on adaptable structural supply chain designs for
supply-demand allocations and, most importantly, the establishment and control
of adaptive mechanisms for transitions between the structural designs. Ivanov
(2020b) defined VSC as follows: “Viable Supply Chain (VSC) is a dynamically
adaptable and structurally changeable value-adding network able to (i) react agilely
to positive changes, (ii) be resilient to absorb negative events and recover after the
disruptions, and (iii) survive at the times of long-term, global disruptions by adjusting
capacities, utilizations, and their allocations to demands in response to internal and
external changes in line with the sustainable developments to secure the provision of
society and markets with good and services in a long-term perspective.”
The VSC framework thus takes the supply chain ecosystem perspective. The
interactions in these supply chain ecosystems are very complex and are triggered by
mutual interrelations and feedback between supply chains, nature, society, and the
economy.
The VSC model is based on the following three cycles (cf. . Fig. 5.4):
55 Leagility-oriented cycle
55 Resilience-oriented cycle
55 Survival-oriented cycle
►►Example
Ford utilizes three levels of the viable supply chain model. Its major supply chain design
is based on cost-efficiency and profitability by utilizing the advantages of lean produc-
tion such as just-in-time, agility (i.e., locating factories close to the markets), and global
sourcing. To be prepared for disruptions and to transit to a resilient supply chain design,
5.2 · Viable Supply Chain
137 5
Nature Society
Employment
Investments
Emissions (-)
Society
needs
Products and
Supply chain services
input Leagility (+) output Make profits (+)
growth (+)
Economic
Recession
Data (+)
Volacity
supply network
(+)(-)
(-)
Digital
Twin
Digital supply Economy &
chain governance
Leagile supply
chain design
Resilient
lean supply chain
Multi-level supply chain
Recovery
agility design
network design responsiveness risk inventory
product variery Survivable supply
capacity buffers chain design
backup suppliers production re-purposing
localisation
re-design of supplier
Adaptation
base and logistics
Adaptation
Ford evaluates the supplier risks, identifies critical suppliers, analyzes the supply chain
resilience in terms of time-to-survive and time-to-recover, and utilizes visibility technol-
ogy to identify disruptions. In case of severe crisis such as COVID-19 pandemic, Ford
has launched the survivable supply chain design while the production systems and sup-
plier base have been re-purposed to produce face shields and ventilators instead of cars
using the available equipment and technology. ◄
138 Chapter 5 · Supply Chain Viability
Although the lean (i.e., cost-efficient) and resilient SC network designs, as well as
the transitions from lean to resilient through deployment of some recovery capa-
bilities (e.g., backup suppliers or risk mitigation inventories), have progressed sig-
nificantly over the last two decades, little is known about the transition from lean
to survivable or from resilient to survivable since this novel context has been just
framed through the pandemic times.
We note that it might be a very challenging task to operate and control three
supply chain designs simultaneously, both in terms of efficiency and complexity. In
addition, it is nearly impossible to predict all possible future scenarios and respec-
tive supply chain designs for matching supply and demand in these scenarios. As
5 such, the main role in the VSC belongs to adaptation and recovery mechanisms,
their design, establishment, training, and implementation. It might be instructive
for firms to “virtually” design and simulate the supply chain structures for resil-
ience and survivability and focus on the adaptation trainings to practice the supply
chain changeability.
The principal ideas of the VSC model are adaptable structural supply chain
designs for situational supply-demand allocations and, most importantly, estab-
lishment and control of adaptive mechanisms for transitions between the struc-
tural designs (Ivanov 2021). The VSC model can help firms in guiding their
decisions on recovery and rebuilding of their supply chains after global, long-term
crises such as the COVID-19 pandemic.
►►Example
Luxury goods manufacturers have completely transformed their operations to manu-
facture urgently needed items during the COVID-19 virus outbreak in 2020. LVMH,
L’Oreal, and Coty repurposed their perfume and hair gel factories to produce hand
sanitizers. Giorgio Armani, Burberry, Gucci, and Prada altered their designer cloth-
ing factories in Italy to produce masks, gloves, and nonsurgical gowns. Similarly, many
automotive giants like Ford and Tesla shifted their production from automobiles to
highly proprietary ventilators and hospital beds by collaborating with local manufac-
turers. Thus, flexible supply chains played a critical role, including rapid raw material
sourcing, product design, development and testing, and distribution. In addition, some
companies resolved shortages of parts for life-saving ventilators and masks by using 3D
printers. This triggers the role of new production technology of additive manufacturing
in spare parts supply chains (Schatteman et al. 2020). ◄
A supply chain intertwining can be observed when firms are involved with different
supply chains at the same time (Nair et al. 2009). Such an intertwining can also be
encountered in industrial symbiosis as well as in circular and sharing economies.
For example, a symbiosis of commercial and humanitarian logistics can exist when
several business and humanitarian supply chains share warehouse facilities. As
seen during the COVID-19 pandemic, suppliers in the automotive sector can
5.3 · Intertwined Supply Networks and Their Viability
139 5
simultaneously become producers of valves for respirators as well (Ivanov and
Dolgui 2020b).
Despite the increasing practical utilization of the above concepts, the supply
chain management literature has not yet framed these new kinds of network integ-
rities in a specific concept. To address this, Ivanov and Dolgui (2020b) introduced
the new term, “intertwined supply network.”
Definition
An intertwined supply network (ISN) is an entirety of interconnected supply chains,
which, in their integrity, secure the provision of society and markets with goods
and services (Ivanov and Dolgui 2020b).
.. Fig. 5.5 Different types of supply networks. (Based on Ivanov and Dolgui 2020b)
140 Chapter 5 · Supply Chain Viability
chains. These intertwined supply chains as a whole can ensure provision of society
with critical services (food service, mobility service, communication service). To this
end, the analysis focus shifts from how a particular firm can return its SC perfor-
mance to an old normal to how the supply chain ecosystems can adapt to secure the
society with critical services.
►►Example
Repurposing is a concept of utilizing the existing manufacturing and logistics capaci-
ties for production of a new, untypical product in a supply chain. The concept of re-
purposing has been used extensively during the COVID-19 pandemic in 2020. Healthcare
5 supply chains for PPE (personal protection equipment) items have not been able to cope
with an increased demand due to the COVID-19 epidemic outbreak. To address the
PPE shortages that have been hampering the healthcare sector worldwide, governments
have appealed to commercial companies which resulted in the creation of ad-hoc supply
chains to combat these shortages. A number of cases to repurpose production systems
and supply chains during the COVID-19 have been observed to meet the demand of
critical items. ◄
Case Study Ford: Supply Chain Repurposing to Save Lives During the COVID-19 Pandemic
In the wake of the COVID-19 pandemic in the USA, Ford repurposed their produc-
tion line to help healthcare sector to cope with a shortage of PPE (personal protec-
tion equipment) within 2 weeks. Starting on March 20, designers and prototypers at
Ford began to review and refine face shield concepts (Ford 2020). They identified
suppliers and engaged engineering and program managers. In collaboration with the
hospital managers, on March 21 face shields designs have been identified that could
be built by a repurposed Ford’s supply chain. On March 22, material planning and
logistics started planning inbound and outbound deliveries for the newly established
product. Suppliers started delivering materials to production sites. On the same day,
the first prototype was completed, and an initial prototype production run was
established. On March 23, new suppliers have been identified to resolve capacity
problems with supply for some materials needed for the face shield production. On
March 24, the first 5000 face shields arrived at the hospitals. Some problems needed
to be operatively resolved. The supply of elastic bands was identified as not sufficient
for full speed production. Alternative product designs have been validated, and new
suppliers have been identified and contacted. On March 25, production continued
reaching 32,000 units per day on March 27. On March 28, a secondary design was
approved, which removed the need for staples. Thus, in 1 week, Ford was able to go
from idea to mass production. Production rate reached 225,000 shields per day, and
the overall delivery of over 1 million units by April 5 has been realized.
Reference:
Ford (2020)
5.4 · Viability and Adaptation of Supply Chains: The Climate…
141 5
Discussion
1. What are the major decisions involved with supply chain when launching a new prod-
uct? Which decisions have been done at Ford?
2. What are the differences between developing a new product in a supply chain and
repurposing the existing one?
3. What is the role of time-criticality in the case of Ford?
4. Which major bottle-necks can you identify which hindered to ramp-up the new sup-
ply chain for face shields? How they have been resolved at Ford?
5. Discuss on the importance of collaboration between commercial supply chains,
healthcare supply chains, and governments.
6. What steps could be taken in future to quickly repurpose the supply chain? Do you
think that some preparedness measures (in terms of production planning, supplier
management, visibility, and digital technology) could help to react more effective and
efficient?
>>Important Observation
Viability-based supply chain designs have the potential to rapidly serve new markets
and/or pivot to new supply chains for new products for business survival.
Meso
Pandemic Medium- perspective Adaptation and SC
term survivability
5 Fire Short-term
Micro
Recovery and firm’s
perspective
resilience
Supply chain disruptions and crises can be divided into micro-, meso-, and
macro-perspectives. For example, a fire at an assembly plant represents an instan-
taneous disruption (i.e., the micro-perspective). The usual coping strategies for this
kind of disruptions are recovery and firm’s resilience. A pandemic is an example for
a long-lasting, super disruption or supply chain crisis (i.e., the meso-perspective).
The meso-disruptions are coped by adaptation and supply chain survivability.
Climate change takes the macro-perspective of supply chain viability that is coped
by adaptation and multi-structural network transformations, e.g., using reconfigu-
rable supplier, manufacturing, and logistics bases and so forming a structurally
reconfigurable supply chain. For example, if some regions are affected by severe
weather disruption, it is likely that all suppliers in this region will be disrupted. As
such, to maintain supply chain continuity, a backup supplier base (i.e., a set of sup-
pliers) somewhere else in the world will be needed in order to situationally recon-
figure the supply chain flows to this backup supplier base. Smooth and efficient
adaptations will be possible using both preparedness plans and digital technology.
Finally, supply chains can mediate the severe impacts of the climate change by
developing sustainable practices and so contributing to reducing emissions and
waste of natural resources. Energy-efficient manufacturing, sustainable logistics,
and flexible, dynamically reconfigurable supply chain designs with situational net-
working of distributed supplier, manufacturing, and logistics bases can be seen as
directions to match resilience, viability, and sustainability across micro-, meso-,
and macro-perspectives.
References
143 5
5.5 Discussion
Besides, many supply chains have a shared supplier base and intersect with each
other forming intertwined structures. Thus far, our attention was directed to under-
stand the intertwining of supply chains and its influence on the viability.
55 What is an intertwined supply network?
55 Elaborate on the chances and challenges of resilience management when con-
sidering intertwined supply networks rather than linear supply chain systems.
Finally, we learned three viability perspectives, i.e., micro, meso, and macro.
55 Explain three viability perspectives.
55 How can supply chains cope with climate change?
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147
Supplementary
Information
Index – 149
Index
A –– propagation 17
–– risks 11
Absorptive capacity 43 –– scenarios 66, 68
Active Usage of Resilience Assets (AURA) 50 –– tail 19
Adaptability 52, 101 Disturbance 5
Adaptable structural supply chain design 138 Dual sourcing 40
Adaptation 39, 66, 131 Dynamics of disruptions 67
Adaptive capacity 44
Additive manufacturing 41
Agent-based simulation 66 E
Agility 40
Early warning system 67
Efficient supply chain 34
End-to-end supply chain visibility 67
B Entropy 102
Backup sourcing 41 Epidemic 82
Bayesian network 65, 107–115 External risk 8
Bayes’ theorem 107
Blockchain 67
Business intelligence (BI) 68 F
Facility fortification 40
Financial risk 8
C
Capacity agility 41
Capacity flexibility 40 H
Conditional probability 111 Hazard uncertainty 4
Connectivity 121
Contingency plan 17
Coordination 40 I
Coronavirus (COVID-19) pandemic 20, 79, 82
Industry 4.0 132
Critical network elements 66
Information risk 8
Critical nodes 64
Intertwined supply network 133, 139
Critical supplier 66
Inventory 38
Inventory control 65
D
Data analytics 67 K
Deep tier financing 67 Known-known uncertainty 11
Deep uncertainty 4 Known-unknown uncertainty 11
Demand risk 8
Design-for-efficiency 33
Design-for-resilience 33 L
Deviation 5
Digital supply chain twin 67 Lean resilience 50
Discrete-event simulation 66 Localization 40
Disruption 11 Low-certainty-need (LCN) supply chain 47
–– data 68
–– identification 68
–– impact assessment 68
M
–– modeling 68 Markov chain 65
–– overlay 19 Mathematical optimization 65
150 Index
N
Network risk 9
S
Network structures 64 Scalability 38
Segmentation 40
Service level 45
O Simulation 68
Open system 133 Stability 5
Operational risk 8, 10 Stress-testing 66
Structural complexity 102
Structural reconfiguration 39
P Structural redundancy 38
Structural variety 50
Parametrical redundancy 50 Super disruption 20, 135
Possible maximum loss 101, 119 Supplier risk 9
Postponement 40 Supply chain
Proactive planning 38 –– adaptability 101
Process flexibility 38, 50 –– crisis 21, 133
Process risk 9 –– discontinuities 64
Product substitution 40 –– ecosystem 136
–– recovery plan 72, 74
–– resilience 31, 37
R –– risk 8
Random uncertainty 4 –– viability 131, 139
Reachability 121 Supply risk 8
Reactive measures 38 Survivability 135, 139
Real-time disruption-detection 67 System dynamics 65
Real-time inventory 68
Recoverability 112
Recovery 68, 138 T
–– costs 65 Time risk 8
–– plan 66 Time-to-recovery 100
–– strategies 40 Time-to-survive 100
Recurrent risks 10
Redundancy 38
Repurposing 140 U
Requisite variety 131
Resilience 3, 5 Uncertainty 3, 4
–– capabilities 37 Uncertainty factors 4
–– capacity 42 Unknown-unknown 11
–– supply chain 34
Responsive supply chain 34
Ripple effect 12, 14, 82
V
–– assessment 101 Viability 132, 133
–– exposure 118 Viable supply chain 135–137
–– prediction 79–89 Viable system model 131
Risk 4, 7 Visualization 67
–– data 68 Vulnerability 37, 112