Supply Chain Resilience: Supply Portfolio

This chapter deals with the optimal selection and protection of part suppliers and order quantity allocation in a supply chain under disruption risks. The protection decisions include the selection of suppliers to be protected against disruptions and the allocation of RMI (risk mitigation inventory) of parts to be pre-positioned at the protected suppliers. The decision-maker needs to decide which supplier to select for parts delivery and how to allocate order quantity among the selected suppliers, and which of the selected suppliers to protect against disruptions and how to allocate RMI among the protected suppliers. The problem objective is to achieve a minimum cost of supplier protection, RMI pre-positioning, parts ordering, purchasing, transportation, and shortage and to mitigate the impact of disruption risks by minimizing the potential worst-case cost. The resilient supply portfolio is identified with protected suppliers capable of supplying parts in the face of disruptive events. A stochastic MIP (mixed integer programming) approach is proposed to determine risk-neutral, risk-averse, or mean-risk supply portfolios, with conditional value-at-risk applied to control the risk of worst-case cost. Numerical examples are presented and some computational results are reported. The major decision-making insights are provided at the end of this chapter.