Managing Risks of Supply-Chain Disruptions: Dual ... - CiteSeerX

Chapter 1Introduction.Modern supply chains are very complex, and recent lean practices have resulted in these networksbecoming more vulnerable. For instance, there is often little buffer inventory and any disruptioncan have a rapid impact on the supply process. These disruptions can have many different sources:natural disasters, strikes, terrorism attacks, etc…Since 9/11, managers are more aware of the vulnerability of their supply-chain but most of themare still confused on the way to manage risk disruptions. Why this is? Firstly, simply because thereis no easy answer in crafting strategies under uncertainties. Second, because managers are reluctantto implicate recent manufacturing practices; years of optimization theory have lead to the supplychainas it is currently and including the notion of risks is a difficult challenge. Lastly, as we willsee, because managers do understand the costs that are related to risk management but have a hardtime quantifying the benefits.This thesis focuses on one particular solution to protect against supply risks: multiple sourcing. Theobjective is to justify this strategy using the real option framework. The first chapters step back andpoint out how the subject of this thesis “dual-sourcing as a real option” integrates in the moregeneral issue “how to manage supply-chain risk disruptions”. Chapter 1 defines a globalframework for thinking about uncertainties and more particularly about disruptions, and chapter 2looks at how dual sourcing fits in the more global list of solutions for managing risks.1.1 How to Manage Uncertainty: General FrameworkIn the past couple of years the business environment has become more and more complex andunpredictable. Companies are struggling to get ahead in this uncertainty. The problem is that, in thenew economy, managers cannot rely any more on outdated “tried-and-true” approaches; they needto adopt new mindsets and strategies. In recent literature, managers can find a lot of material tohelp them think and act in environments that are rapidly changing, and highly uncertain.Many different fields tackle this problem and particularly decision science, organization theory,strategy, entrepreneurship research and cognitive psychology.This chapter relies mainly on two of books of this literature: “The Entrepreneurial Mindset,Strategies for Continuously Creating Opportunity in an Age of Uncertainty” (McGrath and11