International Journal of Production Research

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Mitigation strategies against supply disruption

risk: a case study at the Ford Motor Company

Ece Sanci, Mark S. Daskin, Young-Chae Hong, Steve Roesch & Don Zhang

To cite this article: Ece Sanci, Mark S. Daskin, Young-Chae Hong, Steve Roesch & Don
Zhang (2022) Mitigation strategies against supply disruption risk: a case study at the Ford
Motor Company, International Journal of Production Research, 60:19, 5956-5976, DOI:
10.1080/00207543.2021.1975058

To link to this article: https://doi.org/10.1080/00207543.2021.1975058

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INTERNATIONAL JOURNAL OF PRODUCTION RESEARCH
2022, VOL. 60, NO. 19, 5956–5976
https://doi.org/10.1080/00207543.2021.1975058

Mitigation strategies against supply disruption risk: a case study at the Ford
Motor Company
Ece Sanci a,b , Mark S. Daskin a , Young-Chae Hong c , Steve Roeschc and Don Zhangc
a Industrial and Operations Engineering, University of Michigan, Ann Arbor, MI, USA; b School of Management, University of Bath, Bath, UK;
c Ford Motor Company, Dearborn, MI, USA

ABSTRACT ARTICLE HISTORY

Supply chains are exposed to different risks, which can be mitigated by various strategies based on Received 16 February 2021
the characteristics and needs of companies. In collaboration with Ford, we develop a decision sup- Accepted 22 August 2021
port framework to choose the best mitigation strategy against supply disruption risk, especially for KEYWORDS
companies operating with a small supplier base and low inventory levels. Our framework is based Supply chain risk
on a multistage stochastic programming model which incorporates a variety of plausible strategies, management; disruption risk
including reserving backup capacity from the primary supplier, reserving capacity from a secondary mitigation; sourcing
supplier, and holding backup inventory. We reflect disruption risk into the framework through deci- mitigation; contingency
sion makers’ input on the time to recover and the disruption probability. Our results demonstrate planning; multistage
that relying on the strategy which is optimal when there is no disruption risk can increase the stochastic programming
expected total cost substantially in the presence of disruption risk. However, this increase can be
reduced significantly by investing in the mitigation strategy recommended by our framework. Our
results also show that this framework removes the burden of estimating the time to recover and
the disruption probability precisely since there is often a small loss associated with using another
strategy that is optimal in the neighbourhood of the estimated values.

1. Introduction
Over the last four decades, just-in-time (JIT) has become
the prevailing management philosophy in manufactur-
ing systems, especially in the automotive industry. The
fundamental idea behind the JIT philosophy is to reduce
the inventory levels to a bare minimum (Sugimori et al.
1977). This allows a company to reduce inventory costs,
improve production efficiency, and identify quality prob-
lems quickly. The implementation of JIT is only possible
through flexible suppliers who can promptly respond to
the company’s needs. Therefore, the company should
develop a close relationship with its suppliers to bene-
fit from the advantages offered by JIT. Mehra and Inman
(1992) identify single sourcing as an element of the JIT
vendor strategy, which plays a major role in the suc-
cessful implementation of this manufacturing philoso-
phy. Single sourcing enables the company to coordinate
deliveries from the suppliers with the production sched-
ule. Moreover, single sourcing offers other benefits such
as lower transaction costs, easier quality assurance, and
higher specialisation (Blome and Henke 2009). However,
coupled with low inventory levels, it also increases the
company’s exposure to supply chain risk.
Supply chain risk can be divided into operational
risk and disruption risk (Tang 2006). Operational risk is
inherent in the business, mainly stemming from the fluc-
tuations in demand, supply, and cost. On the other hand,
disruption risk refers to the extreme events causing a
component of the supply chain to stop functioning com-
pletely or partially. These extreme events can occur due
to natural and man-made disasters (earthquakes, hurri-
canes, floods, fires, terrorist attacks, etc.). In this paper,
our focus is on supply-side disruption risk.
There are many examples in recent history where sup-
ply disruptions have led to severe consequences. For
example, Toyota announced the shutdown of twenty of its
thirty assembly lines in 1997 due to a fire at one of its most
trusted suppliers. This supplier was the sole source for P-
valves, which is a small but critical part used in all Toyota
vehicles (Nishiguchi and Beaudet 1998). In 2000, a small
fire at a semiconductor plant in New Mexico stopped
the production of radio-frequency chips for an extended
period of time. Ericsson suffered major losses due to the
chip shortage as this plant was Ericsson’s only source for
chips. This incident eventually had a significant impact
on pushing Ericsson out of the mobile phone terminal

CONTACT Ece Sanci es2138@bath.ac.uk University of Bath, BA2 7AY, Bath, UK

Supplemental data for this article can be accessed here. https://doi.org/10.1080/00207543.2021.1975058
© 2021 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group
This is an Open Access article distributed under the terms of the Creative Commons Attribution-NonCommercial-NoDerivatives License (http://creativecommons.org/licenses/
by-nc-nd/4.0/), which permits non-commercial re-use, distribution, and reproduction in any medium, provided the original work is properly cited, and is not altered, transformed, or
built upon in any way.

business (Norrman and Jansson 2004). The earthquake
and tsunami catastrophe in 2011 forced firms in Japan
to halt production, affecting a wide range of global sup-
ply chains. High-tech industries, in particular, were faced
with severe disruptions since approximately one-fifth of
all global technology products were produced in Japan
(Kim and Jim 2011). Baxter International, the pharma-
ceutical company accounting for 43% of the U.S. IV
solutions market, had to shut down its manufacturing
plants in Puerto Rico after Hurricane Maria in 2017.
The IV saline bag shortage in the U.S. lasted for months
after the hurricane (Konrad 2018). At the time of writ-
ing this paper, the COVID-19 pandemic has devastated
the global economy. Medical supply chains are among
the first group hit by the disruptions due to the out-
break. Following the weeks-long closure of manufactur-
ing plants in China, which is the largest manufacturer of
active pharmaceutical ingredients in the world, the FDA
announced the first COVID-19-related drug shortage in
the U.S. in late February in 2020 (Tucker and Daskin
2020).
As the above examples suggest, single sourcing exac-
erbates the consequences of supply disruptions. Having
redundant suppliers is one of the main recommenda-
tions to mitigate supply disruption risk in addition to
increasing inventory levels (Chopra and Sodhi 2004);
however, JIT companies might be reluctant to give up
on the advantages obtained by single sourcing and low
inventory levels. As suggested by Kleindorfer and Saad
(2005), mitigation strategies should be properly identi-
fied to fit the characteristics and needs of the company.
In this paper, we consider mitigation strategies which are
more plausible in the JIT automotive industry or similar
manufacturing environments:
• A car company typically has its own tooling used by
a supplier. Tooling is specially designed equipment
for manufacturing the part sourced from suppliers.
For example, tooling at a stamping plant includes
the complex dies needed to fabricate auto parts (e.g.
door panels) from steel blanks. As tooling is designed
for a specific part, the supplier cannot use it in any
other manufacturing process. This is why unlike the
machines owned by the supplier, tooling is owned
by the car company. Therefore, the tooling level (e.g.
one die, two dies, etc.) usually determines the capac-
ity reserved from the supplier. The company can also
invest in acquiring backup tooling to use during dis-
ruption periods, which creates backup capacity at the
same supplier (or at a different location of the same
supplier).
• Single sourcing is the dominant practice, but it is still
an option to have a secondary supplier in addition
INTERNATIONAL JOURNAL OF PRODUCTION RESEARCH 5957
to the primary supplier. If capacity is reserved from
two suppliers, the company commits itself to pur-
chase parts from both suppliers regularly. To avoid
commitment to an expensive secondary supplier, the
company can complete the qualification process of the
secondary supplier and use this supplier only during
the disruption periods.
• Inventory levels are preferred to be very low. However,
the time available before the launch of a new prod-
uct (usually a few weeks) can be used to build up the
backup inventory, which is to be used only during the
disruption periods.
In light of the characteristics stated above, we develop
a decision support framework in collaboration with Ford
to choose the best mitigation strategy against the risk that
a primary supplier cannot supply parts due to an extreme
event. Our contribution to the literature is twofold. First,
our framework comprehensively considers mitigation
strategies against supply disruption risk, which are par-
ticularly favourable for companies operating with a small
supplier base and low inventory levels. Our framework
explicitly accounts for the upfront investments enabling
the contingency sources, as well as the additional cost and
response time needed to install them after a disruption
occurs. The building block of our framework is a multi-
stage stochastic programming model, which determines
the regular and backup capacity at the primary supplier,
the capacity at the secondary supplier, and the backup
inventory level before the production starts. Then, the
model determines the number of parts supplied by the
primary and secondary suppliers in every time period
after observing whether a disruption has occurred or not.
This allows us to reflect temporal decisions based on the
timing of disruption. Second, we apply this framework to
a case study motivated from a business example at Ford.
To aid decision makers in understanding the implications
of disruption risk, we use strategy graphs visualising the
optimal strategies. We generate these strategy graphs by
solving the multistage stochastic programming model for
the possible combinations of time to recover and disrup-
tion probability specified through the decision makers’
input. The results obtained from this case study show that
relying solely on the regular capacity of the primary sup-
plier can increase the expected total cost substantially in
the presence of supply disruption risk. However, invest-
ing in an appropriate mitigation strategy proposed by
our framework can significantly reduce the expected total
cost. Moreover, our results reveal that strategy graphs
eliminate the need to estimate the time to recover and
the disruption probability with high precision since the
optimal strategy is not overly sensitive to the estimated
values.
5958 E. SANCI ET AL.
The organisation of the rest of the paper is as follows:
in Section 2, we review the literature on mitigating sup-
ply disruption risk. We present our multistage stochastic
programming model in Section 3, and we explain our
decision support framework in Section 4. We introduce
the Ford case study and discuss our findings in Section 5.
Finally, we present our concluding remarks and future
research directions in Section 6.
2. Literature review
The effect of disruptions on the performance of a sup-
ply chain can be enormous especially when the design
of the supply chain is tightly optimised to perform well
under normal circumstances. There are several ways to
add redundancy to supply chains to protect them against
disruptions. Snyder et al. (2016) classify the literature
on mitigation strategies for supply disruptions based on
the form of redundancy used: mitigation through inven-
tories, mitigation through sourcing and demand flexi-
bility, mitigation through facility location, and mitiga-
tion through interaction with external partners. In this
section, we review the papers using mitigation strategies
solely based on sourcing or in combination with other
forms of redundancy. To better position our paper within
this literature, we first briefly review supplier selection
and order allocation studies as well as reliable facility
location and network design studies. Then, we examine
sourcing mitigation models with contingency planning,
which is the research stream that our paper follows most
closely.
Supplier selection and order allocation studies con-
sidering disruption risk (Berger, Gerstenfeld, and Zeng
2004; Berger and Zeng 2006; Ruiz-Torres and Mah-
moodi 2007; Dada, Petruzzi, and Schwarz 2007; Sarkar
and Mohapatra 2009; Federgruen and Yang 2009; Meena,
Sarmah, and Sarkar 2011; Masih-Tehrani et al. 2011;
Sawik 2011; Hu and Kostamis 2015; Tsai 2016; Yoon et al.
2018) focus on determining how many suppliers and
which suppliers to have in a company’s supplier base as
well as how much to order from each selected supplier.
The models proposed in this literature aim to mitigate
disruption risk by simultaneously ordering from two or
more suppliers, but orders are placed before the disrup-
tion uncertainty is resolved. Therefore, these studies do
not consider contingency operations to undertake in case
of a disruption.
Reliable facility location and network design stud-
ies (Snyder and Daskin 2005; Qi and Shen 2007; Qi,
Shen, and Snyder 2010; Peng et al. 2011; Mak and Shen
2012; Baghalian, Rezapour, and Farahani 2013; Salehi
Sadghiani, Torabi, and Sahebjamnia 2015; Paul, Sarker,
and Essam 2017; Mohammaddust et al. 2017) focus on
determining which facilities to use for sourcing by also
determining how to respond to facility failures using the
non-disrupted facilities. These studies fail to incorpo-
rate differences in the requirements for utilising regular
sources and contingency sources. For example, when a
supplier commits capacity to a company, in general, the
company is required to utilise this capacity regularly dur-
ing business as usual periods. If the company reserves
additional capacity only as a backup source, then this
capacity would not be readily available at any time. Also,
there are usually additional costs incurred due to using
these contingency sources as well as upfront investments
needed to facilitate them, but this is scarcely considered
from the supply-side perspective in the supply chain net-
work design literature (Aldrighetti et al. 2021). These
issues are taken into account in several papers proposing
sourcing mitigation models with contingency planning.
Next, we review these papers in more detail.
2.1. Sourcing mitigation models with contingency
planning
Ivanov et al. (2017) and Ivanov and Dolgui (2019) draw
attention to the need for considering the impact of con-
tingency planning on the optimal mitigation strategies.
When incorporating recovery, it is important to distin-
guish ordering policies between regular and contingency
sources. Next, we review studies proposing sourcing mit-
igation models with contingency planning.
Tomlin (2006) provides insights into a company’s
optimal disruption management strategies when the
company can use contingency sourcing in addition to
dual sourcing from an unreliable supplier and a reli-
able but more expensive supplier. The author models a
company that has the option to reroute orders to the
reliable supplier offering volume flexibility if the unre-
liable supplier is disrupted. Tomlin (2006) assumes that
the volume-flexible capacity cannot be available instan-
taneously; however, the reliable supplier can provide this
capacity after a response time with an increase in the unit
cost. Chopra, Reinhardt, and Mohan (2007) develop a
model for a single-period inventory problem in which
a company places orders to a supplier subject to yield
uncertainty and disruptions. Meanwhile, the company
can also buy capacity from an expensive reliable supplier
for a fixed cost. After the uncertainties are resolved, if the
unreliable supplier cannot deliver the order, the company
can satisfy demand from the reliable supplier up to the
level permitted by the reserved capacity. Schmitt and Sny-
der (2012) extend this model for multiple periods to take
proactive measures for future disruptions. The authors
argue that single-period approximations can lead to
wrong mitigation strategies, especially when disruption

frequencies are high or disruption durations are long.
Chen, Zhao, and Zhou (2012) and Qi (2013) also develop
replenishment policies for multi-period inventory sys-
tems with an unreliable regular supplier and a reliable
supplier that can be used during a disruption. In a simi-
lar setting, Gupta, He, and Sethi (2015) study the impact
of supply disruptions on competing companies’ sourc-
ing strategies for a single period. Yin and Wang (2018)
also study the optimal single-period sourcing strategy of
a company in the presence of an unreliable regular sup-
plier and a reliable supplier offering advance purchase,
reservation, and contingency purchase options.
Under the multiple supplier setting, Tomlin and Wang
(2005) propose a two-stage stochastic programming
model which determines the initial capacity reserved
from suppliers in the first stage before the realisation of
uncertain demand and disrupted suppliers. The second-
stage problem allocates the orders for multiple products
to the non-disrupted suppliers while ensuring that they
have enough capacity and technology to produce these
products. Xu and Nozick (2009) also use the two-stage
stochastic programming framework for modelling the
supplier selection problem in which additional capac-
ity can be reserved through option contracts to hedge
against disruptions. In the first-stage problem, the pro-
posed model determines the supplier base consisting
of primary suppliers and option suppliers, the planned
amounts to be ordered from the primary suppliers, and
the additional amounts that can be obtained from the
option suppliers. The model determines the actual order
amounts after observing the remaining capacity of the
suppliers in the second-stage problem. Sawik (2017) and
Sawik (2019) propose a portfolio approach for selecting
primary suppliers prior to any disruptions and selecting
backup suppliers in case of a disruption. In addition to
backup suppliers, the author considers the option to sup-
port the recovery of disrupted suppliers by sharing their
recovery cost so that these suppliers can reinstall their
pre-disruption capacity after a certain recovery time.
Incorporating backup inventory in addition to different
forms of backup capacity in multi-echelon supply chains,
Schmitt (2011) proposes a model to select disruption
mitigation strategies minimising investment costs while
ensuring a certain service level. More recently, Lücker,
Chopra, and Seifert (2021) study the interplay between
the backup inventory and backup capacity when manag-
ing disruption risk in serial multi-stage supply chains.
The studies presented above consider the additional
costs and limitations associated with using contingency
sources; however, none of these studies explicitly account
for the upfront investments enabling more responsive
contingency actions. One of the few studies taking into
consideration such investments is due to Namdar et al.
INTERNATIONAL JOURNAL OF PRODUCTION RESEARCH 5959
(2018). The authors consider increasing suppliers’ recov-
ery capabilities and the company’s warning capability
through investments in collaboration and visibility. They
assume that a higher level of investment enhances a
supplier’s recovery capability to increase the amount of
recovered quantity in case of a disruption. Moreover, they
assume that an increase in the investment for the warn-
ing capability reduces the recovery time of a disrupted
supplier. The authors propose a two-stage stochastic pro-
gramming model to determine the level of these invest-
ments in the first-stage problem, along with the order
amount from the primary suppliers and the capacity
reserved at the backup suppliers. One limitation in Nam-
dar et al. (2018) is that the second-stage problem focuses
on a single period only. For a similar problem environ-
ment, Hosseini et al. (2019) propose a two-stage stochas-
tic programming model by using a multi-period planning
horizon in the second stage. This multi-period analy-
sis allows them to reflect the evolution of the disrupted
suppliers’ capacity over time. Snoeck, Udenio, and Fran-
soo (2019) also propose a two-stage stochastic program-
ming model to evaluate the disruption mitigation invest-
ments enabling mechanisms for adjusting the capacity
and inventory levels, decreasing supplier lead time, and
shortening disruption duration.
In this study, we develop a decision support frame-
work to choose the best mitigation strategy against supply
disruption risk based on a multistage stochastic program-
ming model. Similar to the aforementioned sourcing mit-
igation models with contingency planning, our model
determines strategic sourcing decisions before the dis-
ruption uncertainty is resolved. We refer to this stage as
the pre-production stage or pre-launch stage since these
strategic decisions are typically made before the launch
of a new product. Investing in increasing the respon-
siveness of the primary supplier is among these strategic
decisions, in addition to reserving capacity from a sec-
ondary supplier and holding backup inventory. After the
launch, our model takes recourse actions when necessary,
by explicitly considering the additional cost and response
time needed to put contingency sources into use. More-
over, our multistage programming framework allows us
to reflect temporal decisions based on the timing of
disruption.
3. Model
Before introducing our model, we present a research
project in collaboration with Ford conducted by Simchi-
Levi et al. (2015). The objective of this research is to
develop a decision support tool to identify critical nodes
(i.e. a part or a manufacturing process) in the com-
pany’s supply chain network. The criticality of a node
5960 E. SANCI ET AL.
is measured by evaluating the impact of its disruption
on the company’s performance through two optimisation
models. The first model takes the time to recover value
as an input and determines the optimal response plan
minimising the performance impact. The second model
determines the maximum amount of time the supply
chain can survive without any performance loss. These
models save the company from the burden of estimat-
ing the disruption probability while detecting the greatest
sources of exposure in its supply chain. Note that deter-
mining optimal mitigation strategies against disruption
risk is not within the scope of Simchi-Levi et al. (2015).
In this study, we consider a company operating in a JIT
environment with a small supplier base and low inven-
tory levels. The company is launching a new product (or
a new programme), and the critical parts of the prod-
uct have already been identified. For each critical part,
the company determines potential suppliers and narrows
down its options to two suppliers offering the most com-
petitive unit costs and tooling costs. Most of the time, one
supplier stands out among all suppliers with appealing
pricing and quality. The company can choose to source
parts only from this single supplier. However, this will
leave the company exposed to the risk that the supplier
cannot provide parts in case of a disruption. To hedge
against this risk, the company can use certain mitigation
strategies. The plausible strategies fitting the company’s
characteristics and needs are as follows:
• Reserve capacity from both suppliers (i.e. the primary
supplier and the secondary supplier),
• Pre-qualify the secondary supplier and reserve addi-
tional capacity from this supplier in case of a disrup-
tion,
• Acquire backup tooling to reserve backup capacity
from the primary supplier,
• Build up backup inventory during the time available
before the launch.
Let us explain these strategies in more detail. The com-
pany can choose to order parts from both suppliers so
that even if the ‘primary’ supplier fails to deliver parts,
the ‘secondary’ supplier can still satisfy the demand to
the extent its capacity permits it to do so. Ordering parts
regularly from both suppliers can be a major cost bur-
den, especially when there is a significant difference in the
unit cost of parts offered by the primary and secondary
suppliers. On the other hand, the secondary supplier can
immediately pick up the production of orders from the
primary supplier when the primary supplier is disrupted.
A compromise is to pre-qualify the secondary supplier
in the pre-launch stage and order from the secondary
supplier only when the primary supplier is disrupted.
In this case, the secondary supplier may need time to
start production but this preparation time is shortened
by pre-qualifying the supplier beforehand.
The company can order parts only from the primary
supplier but still reduce its risk exposure by increasing
the reliability of the supplier through backup capacity. For
example, the company can invest in acquiring additional
tooling and save it in a safe site. If the primary supplier’s
operations are disrupted at the current site, production
can continue using the backup tooling after it is installed
at another site.
The company can also mitigate the supply disruption
risk by simply holding backup inventory regardless of
the choice of single sourcing or dual sourcing. However,
this inventory level is limited by the capacity available in
the pre-production stage. Typically, there are only a few
weeks between the time when the production line is ready
and the time when the production starts.
In this section, we propose a multistage stochastic
programming model to determine the optimal mitiga-
tion strategy for sourcing a critical part throughout the
life of the programme. Before we present the model, we
summarise our notation in Table 1.
In the pre-launch stage, the company determines the
capacity reserved from the primary supplier and sec-
ondary supplier as well as the backup inventory level.
Note that the production line is ready for production
shortly before the launch; therefore, the backup inven-
tory can be built during this time. After the launch, the
company determines the amount of shipment from the
suppliers in every time period, the amount of backo-
rdered demand in every time period, and the amount of
inventory at the end of every time period during the life
of the programme. If the regular capacity of the primary
supplier is disrupted, the company can still place orders
to the primary supplier if backup capacity is reserved.
Similarly, the company can place orders to the secondary
supplier if capacity is reserved from this supplier. Instead,
if the company pre-qualifies the secondary supplier, it can
determine the capacity level to reserve from this supplier
after the launch. Finally, the company can increase the
order size after the regular capacity of the primary sup-
plier is recovered. Next, we explain the important aspects
of these decisions in more detail.
3.1. Reserving capacity from the suppliers
The demand for the critical part is stationary and deter-
ministic, and it is d units in every time period during
the life of the programme. To supply the critical part,
the company reserves capacity from suppliers before the
launch of the programme. This reserved capacity deter-
mines the amount of shipment that can be received from
 INTERNATIONAL JOURNAL OF PRODUCTION RESEARCH 5961

suppliers in each time period after the launch. The com- Table 1. Continued.
pany chooses a capacity level from set LR for the primary I0P : initial inventory level built up by parts supplied from the primary
supplier
I0S : initial inventory level built up by parts supplied from the secondary
supplier
Table 1. Notation. YtωP : amount of shipment from the primary supplier in time period t ∈ T in
scenario ω ∈ 
Sets YtωS : amount of shipment from the secondary supplier in time period t ∈ T
LR : set of regular capacity levels reserved from the primary supplier in scenario ω ∈ 
LB : set of backup capacity levels reserved from the primary supplier Ltω : amount of backordered demand in time period t ∈ T in scenario
LS : set of capacity levels reserved from the secondary supplier ω∈
T: set of time periods during the life of the programme Itω : amount⎧ of inventory at the end of time period t ∈ T in scenario ω ∈ 
: set of disruption scenarios ⎨ if level l ∈ LS \{0} capacity is reserved from the pre
XPlω S = 1, −qualified supplier in ω ∈ 
Parameters ⎩0, otherwise
flR : fixed cost of reserving regular capacity from the primary supplier at S : amount of shipment from the pre-qualified supplier in time period
level l ∈ LR YPtω
flB : fixed cost of reserving backup capacity from the primary supplier at t ∈ T in ω ∈ 
level l ∈ LB
flS : fixed cost of reserving capacity from the secondary supplier at level
l ∈ LS
klR : regular capacity reserved from the primary supplier at level l ∈ LR supplier, which determines the maximum quantity that
klB : backup capacity reserved from the primary supplier at level l ∈ LB can be shipped in every time period from the supplier
klS : capacity reserved from the secondary supplier at level l ∈ LS
m: number of time periods available before the launch whenever it is not disrupted. This is the regular capacity
cP : unit cost of parts supplied from the primary supplier reserved from the primary supplier. Also, the company
cS : unit cost of parts supplied from the secondary supplier
d: demand for parts per time period
can choose to reserve backup capacity from set LB for
b: backordering cost per unit per time period the primary supplier which is available in case the regular
h: inventory holding cost per unit per time period operations of the primary supplier is disrupted. Similarly,
pω : probability that scenario ω ∈  occurs
dsω : time
⎧ period in which the disruption starts the company can choose to reserve a capacity level from
⎨ if the primary supplier is disrupted in time period set LS for the secondary supplier. Note that we define
1,
ρtω = t ∈ T in scenario ω ∈ 
⎩0, otherwise level 0 in LS to represent the option of pre-qualifying the
v: number of time periods needed to install the backup capacity secondary supplier.
eP : percentage increase in the unit cost of parts supplied from the primary There is a fixed cost of installing capacity levels at the
supplier when backup capacity is used
⎧ suppliers, and each capacity level has a corresponding
⎨ if v periods passed for backup capacity
δtω =
1,
to be in place in t ∈ T in ω ∈  capacity of producing parts in every time period. flR , flB ,
⎩0, otherwise
flS denote the fixed cost of reserving regular capacity from
w: number of time periods needed to prepare the pre-qualified supplier
for production
the primary supplier at level l ∈ LR , backup capacity from
eS : percentage increase in the unit cost of parts supplied from the the primary supplier at level l ∈ LB , and capacity from the
pre-qualified supplier
⎧ secondary supplier at level l ∈ LS , respectively. Similarly,
⎨ if w periods passed for pre − qualified supplier to kRl , kBl , kSl denote the parameters corresponding to the
1,
γtω = be available in t ∈ T in ω ∈ 
⎩0, otherwise regular capacity level reserved from the primary supplier
uP : minimum utilisation rate of the primary supplier at level l ∈ LR , backup capacity from the primary supplier
uS : minimum utilisation rate of the secondary supplier
a: allowance in the capacity of the primary supplier that can be used after
at level l ∈ LB , and capacity from the secondary supplier
⎧ from the disruption
the recovery at level l ∈ LS , respectively.
⎨ if time period t ∈ T is after the disruption starts Note that, in this problem environment, the capac-
1,
ϕtω = in scenario ω ∈ 
⎩0, otherwise ity reserved from a supplier is determined based on the
i: discounting factor tooling level. For example, suppose that the company
q: probability of having a disruption in a time period given that no
disruption has occurred before
considers investing in a tooling level at the primary sup-
TTR : number of time periods needed to recover the disrupted primary plier sufficient to satisfy 50% of the demand when there is
supplier no disruption (i.e. kR50% = 0.5d). It also considers invest-
Decision
⎧ Variables ing in a tooling level at the secondary supplier sufficient
⎨ if level l ∈ LR regular capacity is reserved
XlR =
1,
from the primary supplier to satisfy 50% of the demand (i.e. kS50% = 0.5d). If the
⎩0, otherwise company moves forward with this decision, it reserves
⎧
⎨ if level l ∈ LB backup capacity is reserved the total required capacity split between the two sup-
1,
XlB = from the primary supplier
pliers by investing f50% R + fS
⎩0, otherwise 50% for tooling. In fact, this
⎧ is one of the dual sourcing strategies investigated in the
⎨ if level l ∈ LS capacity is reserved
1, Ford case study. In Section 5, we provide a more detailed
XlS = from the secondary supplier
⎩0, otherwise presentation of the feasible strategies under discussion at
(continued) Ford.
5962 E. SANCI ET AL.
We define binary decision variables XlR , XlB , and XlS
to indicate which capacity options are chosen before the
production starts.
3.2. Building up initial (backup) inventory
There are m time periods available before the launch to
build up initial inventory. We define decision variables
I0P and I0S to denote the initial inventory level built up
by parts supplied from the primary supplier and from
the secondary supplier, respectively. Therefore, I0P + I0S is
the backup inventory level available before the launch.
We define cP and cS to denote the unit cost of parts
supplied from the primary supplier and secondary sup-
plier, respectively. Note that we use the same unit costs
for the parts supplied to create the backup inventory
before the launch and for the other shipments after the
launch.
3.3. Placing orders to the suppliers
Once production starts, the company determines how
much to order from both suppliers in every time period
in set T. The primary supplier may be unable to pro-
cess orders due to random disruptions. This source of
uncertainty is represented by the disruption scenarios in
set .
The probability that scenario ω ∈  occurs is pPω
and ω∈ pω = 1. We define the decision variable Ytω
to denote the amount of shipment from the primary sup-
plier in time period t ∈ T in scenario ω ∈ . Similarly,
we define Ytω S to denote the amount of shipment from
the secondary supplier in time period t ∈ T in scenario
ω ∈ .
Note that shipments from the suppliers are received in
the same time period as the orders are placed. The total
amount of shipment is used to satisfy demand occurring
in the current time period and backordered demand from
the previous time period. Any demand that cannot be
satisfied in this time period is backordered with a unit
penalty of b. Also, unused parts are carried over to the
next time period with a holding cost of h per unit per time
period. We define decision variables Ltω and Itω to denote
the amount of backordered demand in time period t ∈ T
in scenario ω ∈  and the amount of inventory at the end
of time period t ∈ T in scenario ω ∈ , respectively.
In every scenario ω ∈ , at most one disruption
occurs during the life of the programme (see Section 3.7
for more details). The disruption starts at time period dsω
in scenario ω ∈ , and it continues for time to recover
(TTR) periods. ρtω indicates whether the primary sup-
plier is disrupted at time period t ∈ T in scenario
ω ∈ .
3.4. Installing backup capacity at the primary
supplier
When the regular capacity cannot be used to satisfy
orders, the backup capacity can be put in place if reserved
in the pre-production stage. When backup capacity is
used to produce parts, there is an eP × 100% increase in
the unit cost of parts supplied from the primary supplier.
Also, it takes v time periods to install the backup capacity.
We define δtω to indicate whether v time periods passed
after the primary supplier is disrupted at time period
t ∈ T in scenario ω ∈ . If the company reserves backup
capacity before the launch, it can utilise this capacity
when δtω = 1.
3.5. Installing capacity at the pre-qualified
secondary supplier
Even though a secondary supplier is not preferred for
sourcing parts regularly, the company can complete the
qualification process of a secondary supplier beforehand
and order parts from this supplier during the disruption
periods. In this case, there is an eS × 100% increase in
unit cost of parts supplied from the secondary supplier
and w time periods are needed to prepare this supplier
for production. We define γtω to indicate whether w time
periods passed after the primary supplier is disrupted
at time period t ∈ T in scenario ω ∈ . If the company
pre-qualifies the secondary supplier before the launch, it
can reserve capacity from this supplier when γtω = 1. We
also define a binary decision variable, XPlω S , to indicate
whether capacity level l ∈ Ls \{0} is reserved from the pre-
qualified supplier in scenario ω ∈ , and YPtω S to denote
the shipment quantity from the pre-qualified supplier in
time period t ∈ T in scenario ω ∈ .
The main reason for distinguishing between pre-
qualifying a secondary supplier and reserving capacity
from this supplier is the difference in the type of com-
mitment made through contract agreements (Jahani et al.
2020). When the company reserves capacity from its sup-
pliers, the company is expected to utilise this capacity. uP
and uS denote the minimum utilisation rate of the pri-
mary supplier and the secondary supplier, respectively.
Note that we define the utilisation rate of a supplier as
the ratio of the amount of shipment from that supplier to
the reserved capacity.
3.6. Recovering the regular capacity of the primary
supplier
When the disruption ends, the primary supplier can take
action to increase the regular capacity such as using over-
time and extra shifts. a denotes the allowance in the
 INTERNATIONAL JOURNAL OF PRODUCTION RESEARCH 5963

capacity of the primary supplier. That is, the primary sup- 4. Once a disruption occurs, it takes TTR time periods
plier increases its capacity by a (defined as the percentage to recover the primary supplier’s regular capacity.
of the capacity) so that the company can increase the
order size to catch up with the backordered demand. Note Figure 1 represents the generation of a scenario tree
that this allowance represents the efforts of the primary based on these assumptions. Note that the node with ‘1’
supplier to compensate for the losses occurred during the indicates that the disruption starts at t = 1, . . . , |T| and
disruption; therefore, it is only viable after the recovery the node with ‘0’ indicates that the disruption has not
following a disruption. We define ϕtω to indicate whether started yet.
time period t ∈ T is after the disruption starts in scenario There are |T| + 1 different scenarios. The disruption
ω ∈  so that the capacity allowance can be utilised. starts at time period t in scenario t except for the final
Finally, we define i as the effective interest rate in a time scenario. To illustrate, the disruption starts at the 1st time
period to account for the discounting factor during the period in the 1st scenario, it starts at the 2nd time period
life of the programme. in the 2nd scenario, and so on. Note that there is no dis-
ruption in the final scenario. We can generate a matrix
indicating whether there is a disruption in a given time
3.7. Scenario generation
period and scenario by combining this scenario tree and
We model random disruptions using a scenario tree. We TTR information. Figure 2 shows an example of this
generate the scenario tree using the following assump- matrix (with TTR = 3 time periods) as well as the cor-
tions: responding scenario probabilities. Note that ‘1’ entries in
the matrix indicate that the primary supplier is disrupted,
1. There is at most one disruption during the life of the whereas ‘0’ entries indicate that there is no disruption.
programme as the focus is on the disruptions due Note that TTR and q are deterministic inputs to our
to extreme events such as earthquakes, hurricanes, multistage stochastic programming model; however, we
floods, fires, and terrorist attacks. incorporate the ambiguity in these inputs by a decision
In even more extreme circumstances, such as a support framework based on solving the proposed model
pandemic with influential second and third waves for combinations of TTR and the disruption probabil-
or an earthquake with strong aftershocks, multi- ity during the life of the programme (derived from q as
ple disruptions need to be considered during the shown in Figure 2). Our results in the next sections show
life of the programme. Note that our model can that the optimal strategy is not overly sensitive to TTR
easily accommodate multiple disruption scenarios and the disruption probability.
through a small adjustment in parameters affected
by the timing of disruption (please see Section A.1 of 3.8. Multistage stochastic programming model
the online appendix); however, we leave the analysis
of these scenarios as future work. Now that we have defined the decision variables and
2. Only the primary supplier is subject to disruptions. parameters, and described our scenario generation
This assumption is in line with the assumptions scheme, we can present our model:
made in the literature on sourcing mitigation models   
min flR XlR + flB XlB + flS XlS
with contingency planning (i.e. cheaper unreliable
l∈LR l∈LB l∈LS
supplier versus more expensive reliable supplier).  
Similar to our remark above, global or regional + pω flS XPlω
S
+ cP I0P + cS I0S (1.1)
crises may necessitate the consideration of simul- ω∈ l∈LS \{0}
taneous disruptions at multiple suppliers. Under  
 
these scenarios, it is important to take into account −t P
+ pω (1 + i) (cP (1 + eP δtω )Ytω ) (1.2)
certain interdependencies, such as the spatial cor- ω∈ t∈T
relations between supplier disruptions. We also  
 
leave the investigation of these scenarios as future + pω (1 + i)−t (cS (Ytω
S S
+ eS YPtω )) (1.3)
work. ω∈ t∈T
3. The number of time periods until a disruption fol-  
 
lows a geometric distribution with parameter q given −t
+ pω (1 + i) hItω (1.4)
that no disruption has occurred before. In other ω∈ t∈T
words, the probability of having a disruption in a  
 
time period is q if there has been no disruption until −t
+ pω (1 + i) bLtω )
this time period. ω∈ t∈T
5964 E. SANCI ET AL.

Figure 1. Scenario tree generation.

Figure 2. An example of the disruption matrix.

⎡ ⎤ 
S
  YPtω ≤ kSl XPlω
S
, ∀t ∈ T, ω ∈  (7)
− pω ⎣ (1 + i) bLt−1,ω )⎦
−t
(1.5) l∈LS \{0}
ω∈ t∈T\{1} 
S
XPlω ≤ X0S , ∀ω ∈  (8)
l∈LS \{0}
s.t. P
Ytω S
+ Ytω + I0P + I0S − d = Itω − Ltω ,
t = 1, ∀ω ∈  (9)

XlR =1 (2) P
Ytω S
+ Ytω + It−1,ω − Lt−1,ω − d = Itω − Ltω ,
l∈LR
 ∀t ∈ T\{1}, ω ∈  (10)
XlB ≤1 (3) 
P
l∈LB
Ytω ≥ uP (1 − ρtω ) kRl XlR , ∀t ∈ T, ω ∈  (11)
 l∈LR
XlS ≤ 1 (4) 
S
l∈LS
Ytω ≥ uS kSl XlS , ∀t ∈ T, ω ∈  (12)
  l∈LS
P
Ytω ≤ (1 − ρtω )(1 + aϕtω ) kRl XlR + δtω kBl XlB , 
l∈LR l∈LB
I0P ≤ m kRl XlR (13)
l∈LR
∀t ∈ T, ω ∈  (5) 
 I0S ≤ m kSl XlS (14)
S
Ytω ≤ kSl XlS + γtω YPtω
S
, ∀t ∈ T, ω ∈  (6) l∈LS
l∈LS
 INTERNATIONAL JOURNAL OF PRODUCTION RESEARCH 5965

Itω ≤ I0P + I0S , ∀t ∈ T, ω ∈  (15) 2. If there has been a disruption but the regular capacity
P
Ytω P
= Ytω , ∀t ∈ T, ω ∈ , ω > t, ω = |T| + 1  (ρtω = 0 and ϕtω = 1), the capacity is
is recovered
(1 + a) l∈LR kRl XlR .
(16) 3. If there is an ongoing disruption and v time periods
S
Ytω S
= Ytω , ∀t ∈ T, ω ∈ , ω > t, ω = |T| + 1 have passed after the disruption started to put the
(17)  in place (ρtω = 1 and δtω = 1), the
backup capacity
capacity is l∈LB kBl XlB .
XlR ∈ {0, 1}, ∀l ∈ LR (18) 4. If there is an ongoing disruption and v time periods
XlB ∈ {0, 1}, ∀l ∈ LB (19) have not passed after the disruption started to put
the backup capacity in place (ρtω = 1 and δtω = 0),
XlS ∈ {0, 1}, ∀l ∈ LS (20) the capacity is 0.
S
XPlω ∈ {0, 1}, ∀l ∈ LS \{0}, ω ∈  (21)
Likewise, the capacity of the secondary supplier at
I0P ≥ 0 (22) time period t ∈ T in scenario ω ∈  can be represented
I0S ≥ 0 (23) by two different cases:
P
Ytω ≥0 ∀t ∈ T, ω ∈  (24) 1. If there is no disruption at the primary supplier or
S
Ytω ≥0 ∀t ∈ T, ω ∈  (25) there is an ongoing disruption but w time periods
S
have not passed after the disruption started to place
YPtω ≥ 0 ∀t ∈ T, ω ∈  (26) order from the pre-qualified supplier (γtω = 0), the
Itω ≥ 0 ∀t ∈ T, ω ∈  (27) capacity is l∈LS kSl XlS .
2. If there is an ongoing disruption and w time periods
Ltω ≥ 0 ∀t ∈ T, ω ∈  (28)
have passed after the disruption started so that the
The objective function minimises the expected total pre-qualified supplier
 is ready for production (γtω =
discounted cost including the fixed cost of reserving 1), the capacity is l∈LS kSl XlS + YPtω
S .

capacity from the suppliers, expected fixed cost of reserv-

ing capacity from the pre-qualified supplier, and cost
of initial inventory (1.1), expected discounted primary
supplier production cost (1.2), expected discounted sec-
ondary supplier production cost (1.3), expected dis-
counted inventory holding cost (1.4), and expected dis-
counted backordering cost (1.5). Note that the last
term in the objective function ensures that the penalty
incurred due to a backordered demand is recovered if the
demand is satisfied subsequently. In this case, the cost of
unmet demand is the interest lost on the backordering
penalty.
Constraints (2), (3) and (4) are the capacity reserva-
tion constraints. Constraint (2) guarantees that a regular
capacity level is reserved from the primary supplier. Con-
straint (3) ensures that at most one backup capacity level
is chosen for this supplier. Similarly, constraint (4) makes
sure that at most one capacity level is chosen for the
secondary supplier.
Constraints (5) and (6) limit the amount of shipment
by the capacity of the primary supplier and the secondary
supplier, which depend on the functionality of the pri-
mary supplier’s regular capacity. The capacity of the pri-
mary supplier in time period t ∈ T in scenario ω ∈  can
be represented by four different cases:
1. If there has not been adisruption (ρtω = 0 and
ϕtω = 0), the capacity is l∈LR kRl XlR .
Constraints (7) ensure that the amount of shipment
from the pre-qualified supplier does not exceed the
capacity reserved from this supplier after the disruption.
Constraints (8) does not allow the model to reserve any
capacity after the disruption if the secondary supplier is
not pre-qualified. Note that X0S denotes the decision indi-
cating whether the supplier is pre-qualified since level 0
is defined for the pre-qualification.
Constraints (9) and (10) are the inventory balance
constraints. These constraints state that the sum of the
total production at the current time period and the inven-
tory at hand is used to satisfy the demand at the cur-
rent time period (also any backordered demand from
the previous time period). Excess parts after satisfying
the demand are transferred to the next time period as
inventory. Similarly, any demand not satisfied in this
time period is transferred to the next time period as
backordered demand.
Constraints (11) and (12) are utilisation constraints.
Constraints (11) ensure that the capacity of the pri-
mary supplier is utilised above a determined threshold
whenever the regular operations are not disrupted. Sim-
ilarly, constraints (12) force the company to order from
the secondary supplier to utilise a certain percentage
of the reserved capacity. Note that when the company
chooses level 0 (i.e. just pre-qualifying the secondary sup-
plier instead of reserving any capacity beforehand), these
5966 E. SANCI ET AL.
constraints are reduced to
S
Ytω ≥ 0, ∀t ∈ T, ω ∈  (29)
saving the company to make any commitment to the
secondary supplier.
Constraints (13) and (14) define the maximum inven-
tory that can be built up before the launch using the
capacity available at the primary supplier and secondary
supplier, respectively. It is worth mentioning that this
inventory is designated to be used mainly during the
disruption periods. Therefore, constraints (15) avoid
increasing the inventory level above the initial inventory
level.
Constraints (16) and (17) are nonanticipativity con-
straints. In the multistage stochastic programming
framework, nonanticipativity reflects the concept that the
decision maker who cannot distinguish between scenar-
ios progressing identically until time period t makes the
same decisions up to time period t. In our scenario tree,
all scenarios are alike until the disruption starts. There-
fore, ordering decisions should be the same across scenar-
ios up to this point. Constraints (16) ensure that the order
quantities placed to the primary supplier in scenario ω
and in scenario |T| + 1 are the same at time period t if
a disruption has not occurred (ω > t). Once again note
that no disruption happens in scenario |T| + 1 during the
life of the programme. This is why this scenario can be
used as a reference scenario.
Lastly, constraints (18) – (28) enforce binary and non-
negativity restrictions of the decision variables.
4. Decision support framework
The values of TTR and q should be identified to generate
scenarios as presented in Section 3. Decision makers usu-
ally have a rough idea of the range of TTR, since they can
pinpoint critical production processes and estimate the
time needed for recovery if these processes are disrupted
(Simchi-Levi et al. 2015; Kinra et al. 2020). (For a discus-
sion on the uncertainty in TTR, please refer to Section A.4
of the online appendix.) However, it is very difficult to
provide a point estimation of TTR. Furthermore, it is
almost impossible to estimate the exact value of q, the
probability that a disruption occurs in a time period, as
it is typically a very small probability. Nevertheless, deci-
sion makers can provide their intuition on the probability
that a disruption occurs anytime during the life of the
programme; i.e. 1 − p|T|+1 or 1 − (1 − q)|T| . We call this
probability as the disruption probability in the rest of the
paper. From this, we can compute q.
Our decision support framework is based on solving
the proposed model for combinations of TTR and the dis-
ruption probability. Our discussions with Ford reveal that
Figure 3. An example strategy graph.
the range of TTR that they are interested in is between
2 and 20 weeks, and the range of the disruption proba-
bility is between 0% and 10%. Utilising this information,
we generate the strategy graph which depicts the optimal
strategies within the given range of TTR and the dis-
ruption probability. A strategy graph for a hypothetical
example is given in Figure 3. To create this graph, the
model is solved for 100 different combinations of TTR
(2, 4 weeks, . . . , 20 weeks) and the disruption probabil-
ity (1%, 2%, . . . , 10%). The optimal strategy is identi-
fied for each combination and depicted on the strategy
graph. Note that this strategy graph is generated based
on the range of TTR and the disruption probability on
Ford’s radar; however, it is quite straightforward to use
this framework for different ranges that other companies
might be interested in.
Figure 3 shows that there are three strategies which
are optimal in different parts of the graph. The advantage
of using this strategy graph is that decision makers do
not need to estimate TTR and the disruption probability
precisely. For example, Figure 3 suggests that regardless
of the estimated disruption probability, Strategy A is the
optimal strategy if TTR is less than or equal to eight
weeks. Moreover, strategy B is the optimal strategy if TTR
is more than 8 weeks and the disruption probability is
between 3% and 6%. If decision makers agree that TTR
is 20 weeks but they cannot agree on whether the dis-
ruption probability is more than 6%, they can compare
the expected total cost when Strategy B or Strategy C is
implemented. Our results from the case study at Ford
in the next section indicate that the difference between
the expected cost of implementing these neighbouring
strategies can be insignificant. Therefore, the regret in
 INTERNATIONAL JOURNAL OF PRODUCTION RESEARCH 5967

Table 2. Feasible strategies under discussion.

Regular Capacity at Backup Capacity at the Capacity at the Backup
Mitigation Strategy Strategy Name the Primary Supplier Primary Supplier Secondary Supplier Inventory
No mitigation No Mitigation: 100% 0% 0% No
(100%,0%,0%) no inventory
Backup inventory Backup Inventory: 100% 0% 0% Yes
(100%,0%,0%) with inventory
Dual sourcing Dual Sourcing I: 50% 0% 50% No
(50%,0%,50%) no inventory
Dual Sourcing II: 100% 0% 100% No
(100%,0%,100%) no inventory
Dual Sourcing III: 100% 0% Pre-qualified No
(100%,0%,pq) no inventory
Backup capacity Backup Capacity I: 100% 50% 0% No
(100%,50%,0%) no inventory
Backup Capacity II: 100% 100% 0% No
(100%,100%,0%) no inventory

using the non-optimal strategy when the probability is
not estimated precisely tends to be small.
5. Case study
Following a major supply disruption during 2018, Ford
began considering the use of mitigation strategies to pro-
tect against supply disruption risks for critical parts. The
feasible strategies under discussion are given in Table 2.
Each strategy is described by a triplet giving the regular
capacity at the primary supplier, backup capacity at the
primary supplier, and capacity at the secondary supplier.
Note that x% capacity represents the capacity sufficient
to satisfy x% of the demand. Along with this triplet, the
strategy name also indicates whether backup inventory is
allowed or not.
Note that there are more strategies available other than
the ones listed in Table 2. For example, the company can
integrate backup inventory with the dual sourcing strat-
egy in which the capacity is reserved from the primary
supplier to satisfy 50% of the demand and the capacity
is reserved from the secondary supplier to satisfy 50%
of the demand; i.e. integrate Backup Inventory with Dual
Sourcing I. In this way, the company can satisfy half of
the demand from the secondary supplier and the other
half from the backup inventory whenever the primary
supplier is disrupted. However, before allowing hybrid
strategies, we consider only these core strategies to per-
form a comparative analysis to gain insights into their
upsides and downsides.
In this section, we conduct our analyses for the vehicle
part whose production was disrupted due to an extreme
event at the supplier’s plant. We obtained the unit cost
per part and the tooling cost information from the mar-
ket test performed by the purchasing experts. Unfor-
tunately, we can share neither the cost figures nor the
names of the potential suppliers due to confidential-
ity concerns. We also cannot provide the demand of
Table 3. Values of the uncensored parameters used in the case
study.
h : inventory holding cost per unit per time period h = $0.02
m: number of time periods available to build up the m = 8 weeks
initial inventory
v: number of time periods needed for the backup v = 2 weeks
capacity to be in place
w: number of time periods needed for the pre-qualified w = 6 weeks
supplier’s capacity to be in place
eP : increase in unit cost of parts supplied from the eP = 0.50
primary supplier when backup capacity is used
eS : increase in unit cost of parts supplied from the eS = 1.00
pre-qualified supplier
uP : minimum utilisation rate of the primary supplier uP = 50%
uS : minimum utilisation rate of the secondary supplier uS = 50%
a: allowance in the capacity of the primary supplier a = 15%
i : effective interest rate for time period i = 0.0425%
the vehicle and the profit margin per vehicle (corre-
sponding to the backordering penalty). We present the
values of other parameters used in this case study in
Table 3.
Note that we use weeks to represent time periods in
the planning horizon, and we consider that the planning
horizon consists of 3 years × 46 weeks
year = 138 weeks.
To generate the strategy graph for this case study, we
solved the MIP equivalent of the multistage stochastic
programming models corresponding to each combina-
tion of TTR and the disruption probability. We used IBM
ILOG Cplex 12.9 operating on an Intel(R) Core(TM)
i7-8565U CPU 1.80 GHz, 16 GB RAM machine with
Windows 10. Note that each MIP model has 285 binary
decision variables and 95,912 nonnegative decision vari-
ables. Cplex solved each one of these models to optimality
with an average CPU time of 302.4 s.
Before presenting the strategy graph for this case
study, we investigate the effect of implementing the
strategies given in Table 2 on the expected total cost. We
compare the expected total cost of these strategies with
the optimal expected total cost if there is no disruption
risk. Note that No Mitigation is the optimal strategy when
there is no disruption risk.
5968 E. SANCI ET AL.
Similar to the strategy graph, we generate heat maps
to visualise the relative expected total cost of a strategy
as a function of TTR and the disruption probability. We
define the relative expected total cost of a strategy as the
ratio of the expected total cost of this strategy to the opti-
mal expected total cost if there is no disruption risk. Note
that we add the leftmost column in our heat maps to
show the relative expected total cost when the disruption
probability is 0%.
Next, we discuss the effect of implementing mitiga-
tion strategies using these heat maps. We also support
our claims with the plots illustrating the change in the
cost components with respect to TTR (fixing the disrup-
tion probability to 10%). We group the cost components
into five: capacity cost and initial inventory cost, expected
production cost (primary supplier), expected production
cost (secondary supplier), expected inventory holding
cost, and expected backordering cost. These cost compo-
nents correspond to the objective function components
presented in Section 3. Due to confidentiality concerns,
we cannot provide the cost values on the plots. Similar to
the heat maps, the cost values on these plots are scaled
based on the optimal expected total cost if there is no
disruption risk.
5.1. Mitigation through backup inventory
The heat map depicted in Figure 4a shows the relative
expected total cost for No Mitigation in Table 2 with
respect to TTR and the disruption probability. The heat
map indicates that the expected total cost of relying on
this strategy goes up significantly as TTR and the disrup-
tion probability increase. On the other hand, Figure 4b,
which represents the heat map of the relative expected
total cost for Backup Inventory in Table 2, reveals that
solely using inventory helps to reduce the expected total
cost to a great extent. We observe that inventory mitiga-
tion is especially effective when TTR is less than or equal
to eight weeks available in the pre-production stage to
build up inventory.
As we mention above, we also generate the plots of cost
components with respect to TTR when we fix the disrup-
tion probability to 10%. Figure 5a and Figure 5b show
the change in the cost components with respect to TTR
for the No Mitigation and Backup Inventory strategies,
respectively. We add the leftmost bars to represent the rel-
ative costs in case there is no disruption risk (TTR = 0).
Note that these leftmost bars in both figures are identi-
cal since the Backup Inventory strategy also holds zero
inventory when there is no disruption risk. These bars
indicate that the expected production cost constitutes a
large portion of the expected total cost compared to the
capacity cost. In fact, the capacity cost is approximately
4% of the expected total cost when there is no disrup-
tion risk. Figure 5a shows that the level of the capacity
cost does not change for No Mitigation as TTR increases;
however, Figure 5b indicates a slight increase in this cost
component as we allow for the creation of the backup
inventory. Note that this increase is limited as the level of
inventory cannot exceed eight weeks of inventory. When
the inventory level is at its maximum allowed level, the
capacity and initial inventory cost is approximately 10%
of the reference cost, which is still a small portion of the
overall cost. In addition to the cost of building up initial
inventory, there is also the expected inventory holding
cost associated with carrying inventory from one week
to the next week. However, we observe from Figure 5b
that this cost component is not significant compared to
the other cost components.
A significant cost component entering the picture
as we increase TTR is the expected backordering cost.
Figure 5a suggests that the expected backordering
cost increases dramatically for No Mitigation as TTR
increases. According to Figure 5b, Backup Inventory
keeps the expected backordering cost under control for
smaller TTR values. However, we observe the steep
increase in the expected backordering cost for Backup
Inventory as well if the initial inventory is not sufficient
to satisfy the demand during the disruption.
5.2. Mitigation through dual sourcing
Figure 6 presents the relative expected total costs for the
three dual sourcing strategies in Table 2. We observe from
Figure 6a that Dual Sourcing I is not an effective miti-
gation strategy. This strategy offers improvement in the
expected total cost over No Mitigation only for high val-
ues of TTR and the disruption probability. Although half
of the demand can be satisfied from the secondary sup-
plier, Dual Sourcing I does not provide an alternative to
source parts ordered from the primary supplier when this
supplier is disrupted. On the other hand, Dual Sourcing II
allows the secondary supplier to pick up the orders from
the primary supplier during the disruption periods. As
we can see from Figure 6b, this strategy is quite robust
for all combinations of TTR and the disruption probabil-
ity. Note that when the disruption probability is 0%, the
expected total costs of Dual Sourcing I and Dual Sourcing
II increase by 23% and 29% compared to the expected
total cost of No Mitigation, respectively. The main reason
for the increase in the expected total cost is the expected
cost of production at the secondary supplier. Both Dual
Sourcing I and Dual Sourcing II commit to the expen-
sive secondary supplier to order parts during the life of
the programme; however, Dual Sourcing III uses this sup-
plier only during the disruption periods. Figure 6c shows
 INTERNATIONAL JOURNAL OF PRODUCTION RESEARCH 5969

Figure 4. Relative expected total cost for No Mitigation and Backup Inventory.

Figure 5. Relative cost components w.r.t. TTR for No Mitigation and Backup Inventory (Disruption Probability = 10%).

that Dual Sourcing III is a more advantageous strategy in
a broader range among the three dual sourcing strategies.
Next, we examine the plots of cost components with
respect to TTR generated for Dual Sourcing I, Dual Sourc-
ing II, and Dual Sourcing III. Like Figure 5 above, we fix
the disruption probability to 10% for this analysis. Note
that the vertical scales of Figure 7 differ from those of
Figure 5. We observe from Figure 7b that Dual Sourcing
II requires a higher level of initial investment as it installs
sufficient capacity to produce 200% of the demand when

Figure 6. Relative expected total cost for Dual Sourcing I, Dual Sourcing II, and Dual Sourcing III.
5970 E. SANCI ET AL.
there is no disruption. Figure 7a and Figure 7c suggest
that Dual Sourcing I and Dual Sourcing III have similar
capacity costs. There is only a small increase in the capac-
ity cost for Dual Sourcing III due to the initial investment
to pre-qualify the secondary supplier. Furthermore, the
increase in the expected cost due to the capacity installed
after the disruption is insignificant compared to this ini-
tial investment needed for the pre-qualification.
Figure 7a and Figure 7b show that the expected pro-
duction costs at the primary supplier in Dual Sourcing I
and Dual Sourcing II are almost half of the costs in No
Mitigation and Dual Sourcing III. Note that Dual Sourcing
I and Dual Sourcing II require ordering from the sec-
ondary supplier regularly. Therefore, these strategies split
the orders between both suppliers.
Dual Sourcing II is the most effective strategy in
dealing with the unmet demand. As we observe from
Figure 7b, the expected backordering cost is almost zero
under this strategy since demand can be completely sat-
isfied from the secondary supplier when the disruption
occurs. Figure 7a shows that Dual Sourcing I cannot cope
with the increasing number of backordered demands as
the secondary supplier can produce at most 50% of the
demand when the primary supplier is disrupted. Finally,
we can observe from Figure 7c that Dual Sourcing III
results in backordering costs during six weeks needed for
the pre-qualified supplier to start production.
5.3. Mitigating through backup capacity at the
primary supplier
Figure 8 shows the relative expected total costs for Backup
Capacity I and Backup Capacity II in Table 2. These fig-
ures illustrate that having an adequate level of the backup
capacity at the primary supplier is effective in reducing
the expected total cost. When the disruption probabil-
ity is 0%, the expected total costs of Backup Capacity
I and Backup Capacity II increase by only 2% and 4%
respectively compared to the expected total cost of No
Mitigation. In return, the savings in the expected total
cost are very significant when the disruption probability
is greater than 0%.
Next, we also present the plots of cost components
generated for Backup Capacity I and Backup Capacity
II when the disruption probability is 10%. Compared to
No Mitigation, the capacity cost increases by 50% and
by 100% under Backup Capacity I and Backup Capacity
II, respectively. However, Figure 9a and Figure 9b indi-
cate that the increase in the capacity cost when reserving
backup capacity is insignificant since the capacity cost
itself has a small share in the expected total cost, as
discussed above.
Figure 9a shows that Backup Capacity I cannot handle
the increase in the backordered demand as the backup
capacity is only able to produce 50% of the demand dur-
ing the disruption periods. Backup Capacity II has suf-
ficient capacity to produce 100% of the demand during
the disruption periods; however, we still observe a slight
increase in the expected backordering cost in Figure 9b
since it takes two weeks to restore the backup capacity
at the primary supplier. Note that the demand backo-
rdered during these weeks cannot be met until the regular
capacity is back with an increase in the production rate.
5.4. Strategy graph
As discussed earlier, the feasible strategies are not lim-
ited to these seven strategies analysed above. In fact,
building up backup inventory can be complementary for
strategies like Dual Sourcing I and Backup Capacity I. In
Figure 10, we present the strategy graph generated by
allowing hybrid strategies. We also provide the inventory
graph showing the initial inventory levels corresponding
to the optimal mitigation strategy.
Figure 10 suggests that there are five optimal strategies
within the range determined for TTR and the disruption
probability. The strategy of solely reserving 100% capac-
ity from the primary supplier is only optimal when the
disruption probability is 0%. We observe that the strat-
egy of reserving 100% capacity from the primary supplier
and building up backup inventory is the optimal strat-
egy when there is disruption risk and TTR is less than
or equal to eight weeks. This means that when TTR is
expected to be smaller than the time available before the
launch, it is still optimal to use single sourcing without
any additional backup capacity. Inventory mitigation is
an effective strategy in this case. When we examine the
inventory graph, we see that the inventory level is exactly
the level required to satisfy the demand during the dis-
ruption (up to a maximum of eight weeks of inventory)
if the disruption probability is more than 3%. When the
disruption probability is low, the inventory level can be
slightly less than the exact amount required during the
disruption.
If TTR is more than eight weeks but less than or equal
to sixteen weeks, the dominant strategy is reserving 50%
backup capacity from the primary supplier in addition to
100% regular capacity. In this case, half of the demand is
satisfied through the backup capacity and the other half
is satisfied through the initial inventory during the dis-
ruption. Therefore, the inventory level under this strategy
tends to be approximately half of the level needed to sat-
isfy the demand during TTR weeks. The reason that the
inventory level is slightly more than this level is the two
weeks of preparation time for the backup capacity.
 INTERNATIONAL JOURNAL OF PRODUCTION RESEARCH 5971

Figure 7. Relative cost components w.r.t. TTR for Dual Sourcing I, Dual Sourcing II, and Dual Sourcing III (Disruption Probability = 10%).

Figure 8. Relative expected total cost for Backup Capacity I and Backup Capacity II.

When TTR is more than sixteen weeks, it is opti-
mal to reserve 100% regular and 100% backup capacity
from the primary supplier if the disruption probability is
more than 3%. In this case, the optimal inventory level
is only for two weeks. These two weeks of inventory are
held to satisfy the demand during the time needed to
install the backup capacity at the primary supplier. If the
disruption probability is less than or equal to 3% (but
more than 0%), the optimal strategy is to reserve 100%
capacity from the primary supplier and pre-qualify the
secondary supplier. Under this strategy, it is optimal to
have six weeks of inventory to satisfy the demand during

Figure 9. Relative cost components w.r.t. TTR for Backup Capacity I and Backup Capacity II (Disruption Probability = 10%).
5972 E. SANCI ET AL.

Figure 10. Strategy graph and inventory graph.

the time needed to prepare the secondary supplier for

production.
Figure 11 shows the relative expected total cost of the
strategies given in the strategy graph. Recall that the rela-
tive expected total cost is computed based on the optimal
expected total cost when there is no disruption. In other
words, the reference point is the expected total cost of
No Mitigation when the disruption probability is 0%. We
observe from Figure 11 that even when TTR is 20 weeks
and the disruption probability is 10%, the expected total
cost increases by 5% compared to the optimal expected
total cost if there was no disruption risk. When we check
Figure 4 again, we see that the expected total cost of No
Mitigation under this most extreme case is 3.55 times
the expected total cost of No Mitigation under no dis-
ruption risk. This means that the expected total cost Figure 11. Relative expected total cost for the strategy grap.
can increase drastically if the sourcing strategy is chosen
without accounting for the disruption risk. However, it is
possible to mitigate the increase in the expected total cost significant differences between the expected total costs
by using an adequate strategy based on the risk profile of neighbouring strategies on the borders defining opti-
defined by TTR and the disruption probability. mal strategies. For example, it is optimal to pre-qualify
We also analyse the relative expected total cost of all the secondary supplier or reserve 100% backup capac-
five strategies shown on the strategy graph. We have ity from the primary supplier when TTR is more than
already presented the heat maps for the (100%, 0%, 0%) 16 weeks. The disruption probability determines which
strategy without inventory (No Mitigation in Table 2) of these two mitigation strategies is optimal. However,
and the (100%, 0%, 0%) strategy with inventory (Backup even if the disruption probability could not be estimated
Inventory in Table 2) in Figure 4. Figure 12 illustrates the precisely, the regret of using the non-optimal strategy
heat maps of the relative expected total cost for the (100%, would be small. To illustrate, suppose that the true dis-
50%, 0%) strategy with inventory, the (100%, 100%, 0%) ruption probability is 3%, but the decision makers over-
strategy with inventory, and the (100%, 0%, pq) strategy estimate this probability as 6%. Therefore, the optimal
with inventory. strategy is identified as reserving 100% backup capac-
As we can observe from Figure 12, these hybrid strate- ity from the primary supplier instead of pre-qualifying
gies are quite robust over all values of TTR and the disrup- the secondary supplier. In this case, the expected total
tion probability. Moreover, we observe that there are no cost would only increase by 0.2% when TTR is 20 weeks.

Figure 12. Relative expected total cost for the optimal strategies on the strategy graph.
In the opposite case, where the true disruption proba-
bility is 6% but is underestimated as 3%, the expected
total cost would increase by 0.7%. All in all, the regret of
using the non-optimal strategy due to an imprecise esti-
mation is at most 1.3% of the optimal expected total cost,
when the probability estimations are within the range
of 1% to 10%. However, the increase in the expected
total cost can be drastic when the disruption risk is com-
pletely ignored (i.e. the disruption probability is assumed
to be 0%, but the disruption risk does exist). For exam-
ple, when TTR is 20 weeks, the expected total cost would
increase to 1.7 and 2.4 times the optimal expected total
cost when the true disruption probability is 3% and 6%,
respectively.
This section points out important results for the case
study in question. In this case study, the optimal mitiga-
tion strategy is to use inventory mitigation when TTR
is less than the time available to build up the backup
inventory. When TTR is longer, it is optimal to use the
backup capacity at the primary supplier or to pre-qualify
the secondary supplier depending on the estimated value
of TTR and the disruption probability. Note that our find-
ings are in line with Tomlin (2006). In this seminal paper,
Tomlin (2006) also points out that in an environment of
rare but long disruptions, sourcing mitigation becomes
more attractive over inventory mitigation since the lat-
ter requires carrying an excessive level of inventory for
extended periods without any disruption.
A noteworthy observation in this case study is that
the inventory holding costs and the capacity costs are
relatively low compared to the production costs and the
backordering costs. For sensitivity analyses, we investi-
gated how our results would change for problem environ-
ments in which the cost of holding inventory and the cost
of adding more capacity are higher. We also investigated
the case in which decision makers’ TTR estimation is not
exact; i.e. TTR uncertainty exists. Finally, we analysed the
sensitivity of the strategy graph to certain parameters.
INTERNATIONAL JOURNAL OF PRODUCTION RESEARCH 5973
We present our sensitivity analyses results in the online
appendix (Sections A.2 – A.5).
6. Conclusions
In this study, we develop a decision support framework
with Ford to choose the best mitigation strategy against
supply disruptions when sourcing a critical part. The
building block of the framework is a multistage stochastic
programming model. This model determines the miti-
gation strategy to use before the launch of a new pro-
gramme when the disruption uncertainty has not been
resolved. By solving this model for possible TTR and dis-
ruption probability combinations, we generate the strat-
egy graph to illustrate the optimal strategies. The strategy
graph aids decision makers to choose the best mitigation
strategy based on their intuition on the values of TTR and
the disruption probability.
We discuss our results using a case study based on a
business example at Ford. This case study demonstrates
that relying solely on the regular capacity of the primary
supplier, which is optimal when there is no disruption
risk, can increase the expected total cost substantially
when the disruption probability is not 0%. The impact
of ignoring the disruption risk on the expected total cost
can be large especially for higher values of TTR. However,
a proper mitigation strategy can alleviate the increase in
the expected total cost even for the extreme values of
TTR and the disruption probability. Our results show
that holding backup inventory is an effective strategy
for smaller values of TTR when the backup inventory
level is sufficient to satisfy demand during the disruption.
For larger values of TTR, it is more appealing to inte-
grate inventory mitigation with reserving backup capac-
ity from the primary supplier or with pre-qualifying the
secondary supplier. Our results point out the robustness
of these hybrid strategies over all possible combinations
of TTR and the disruption probability.
5974 E. SANCI ET AL.
There are several interesting future directions emerg-
ing from this research. Our attention in this paper is
on the supply disruption risk; however, it is neces-
sary to incorporate other supply chain risks and their
interdependencies when making strategic sourcing deci-
sions (Aqlan and Lam 2015). Analysing such correla-
tions within the problem environment presented in this
study is a notable research direction. Another prominent
extension is to account for multiple suppliers subject to
multiple disruptions in the supply chain network design
context, by also considering the disruption propagation
and the so-called ripple effect (Liberatore, Scaparra, and
Daskin 2012; Dolgui, Ivanov, and Sokolov 2018). This has
become an urgent topic in the COVID-19 era as the sup-
ply chains have been experiencing unprecedented supply
disruptions since the beginning of the outbreak. Finally,
it is worthy of considering different objective functions
such as maximising profit and minimising conditional
value-at-risk of cost or multiple objectives addressing the
tradeoff between cost and reliability.
Acknowledgments
This work is supported by a grant from the Ford Motor Com-
pany, project grant number N025042. We are thankful to
Colleen Montgomery, Scott Moore, Christopher Recktenwald,
Paul Prestel from Ford Purchasing and Varsha Venkatesh from
Ford Global Data, Insight and Analytics for their valuable con-
tribution. Also, we would like to extend our thanks to the
associate editor and anonymous reviewers for their insight-
ful comments and constructive suggestions to improve the
manuscript.
Disclosure statement
No potential conflict of interest was reported by the author(s).
Funding
This work was supported by Ford Motor Company: [Grant
Number N025042].
Notes on contributors
Ece Sanci is a Lecturer (Assistant Pro-
fessor) in the Information, Decisions &
Operations division of the School of Man-
agement at the University of Bath. She
received her Ph.D. in Industrial and Oper-
ations Engineering in 2019 from the
University of Michigan, Ann Arbor. She
received her B.S. and M.S. in Industrial
Engineering in 2013 and 2015 from the Middle East Technical
University (METU) in Ankara. Her research focuses on deci-
sion making under uncertainty with applications in disaster
relief management and supply chain risk management.
Mark S. Daskin is the Clyde W. Johnson
Collegiate Professor in the Industrial and
Operations Engineering Department of
the University of Michigan at Ann Arbor.
He served as the chair of the department
for almost nine years beginning in 2010.
Prior to joining the Michigan faculty, he
was on the faculty at Northwestern Uni-
versity, where he also served as the chair of the Industrial Engi-
neering and Management Sciences Department for six years.
He is a former editor-in-chief of both Transportation Science
and IIE Transactions. He is the author of two books: Service Sci-
ence, and Network and Discrete Location: Models, Algorithms,
and Applications.
Young-Chae Hong is a research scien-
tist at Ford Motor Company. He received
his Ph.D. degree in Industrial and Oper-
ations Engineering from the University
of Michigan at Ann Arbor in 2017. His
research interests are in large-scale opti-
mization problems and machine learn-
ing algorithms to improve computational
time. He worked as a research assistant at the Center for Health-
care Engineering and Patient Safety (CHEPS) for healthcare
scheduling problems. He is currently working on three major
research topics: supply chain analytics, routing with bin pack-
ing problem, and quantum algorithm.
Steve Roesch is a data scientist at Chewy.
He worked as an analytics scientist at Ford
Motor Company between 2017 and 2021.
He received his Ph.D. degree in Industrial
and Systems Engineering in 2017 from
Virginia Polytechnic Institute and State
University.
Don (Xiaodong) Zhang received his Ph.D.
and M.S. degrees in Materials Science and
Engineering from Carnegie Mellon Uni-
versity, Pittsburgh, PA, USA. Currently, he
is a Technical Expert and data scientist
supervisor in the Global Data Insight and
Analytics at Ford Motor Company.
ORCID
Ece Sanci http://orcid.org/0000-0002-8725-4446
Mark S. Daskin http://orcid.org/0000-0001-5509-2588
Young-Chae Hong http://orcid.org/0000-0001-6330-6101
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