Modeling and Mitigating Supply Chain Vulnerabilities

Lehigh University, Bethlehem PA

Investigators

Abstract

This research project will develop and solve models for designing and operating supply chains that are resilient to disruptions. One set of models will prescribe optimal strategies for coping with disruptions when the firm has advanced warning that a disruption may occur or that the probability and duration of a disruption has changed. Another set of models will examine alternate strategies available to firms facing disruptions, including dual sourcing, emergency sourcing, demand management, and capacity flexibility. These models will be formulated and solved using classical inventory theory and Markov decision processes. In addition, this research will study the cascading effect of disruptions in a multi-echelon supply chain. Using a combination of simulation and optimization techniques, the research will identify the vulnerabilities of such a system and develop strategies for placing safety stock inventory within the system to buffer against disruptions. Many of the models developed will be integrated into a freely distributed software package that simulates a multi-echelon inventory system and may be used in both research and classroom settings. If successful, this research will produce a transformative set of models for supply chain design and management that handle risk during the planning stage, rather than the operational one. It aims to transform the way planners think about "optimality" in supply chains by demonstrating that optimal solutions to many problems are not optimal at all in light of disruptions, and that a policy that fails to account for such disruptions can be extremely costly in the long run. Preliminary results suggest that supply chains can be made significantly more resilient to disruptions without large investments in infrastructure or inventory. The models and insights from this research will be useful to planners in industrial settings as well as non-commercial enterprises such as disaster relief agencies and the military.