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

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- “Product and Process Redesign”. Standardizing the manufacturing processes permits toswitch easily from one plant to another, or from one supplier to another. Having morestandard components would enable firms to diversify their sourcing base and increaseinventory pooling with other sites. “Postponement”, or delayed product differentiation,gives the opportunity to companies to change the configuration of one product at lastminute in case of short supply of a component due to a disruption.Those 3 solutions are just an illustration of flexibility. Many other solutions exist. For example,firms can try to implement a flexible workforce and set up arrangements to add labor capacity, orthey can make their manufacturing capacity more flexible by dividing up the production of onecomponent in several sites, etc…2.5 Limitation to Resilience1) Complexity Vs ResilienceTo build a resilient supply chain has many benefits however increasing redundancies andflexibilities in the supply-chain often leads to increase complexity, which works against resilience.Indeed as complexity of the supply-chain increases, uncertainties become more and more importantand firms become more vulnerable. As a result it is necessary to find a trade-off between resilienceand complexity.2) Trade-off the risks.For example, there are risks on relying too much on a single supplier. But a single supplier allows abetter protection of the company’s intellectual property.3) Cost-efficiency Vs Resilience.Firms cannot abandon just-in-time practices as such a system permitted to save a lot of money –estimated at more than $1 billion a year in inventory carrying costs over the past ten years. On viewof the recent events, drawbacks of such practices have been highlighted and trade-offs between costand risks must therefore be assessed. On the one hand, when a decision is made to reduce cost it isnecessary to check that risks haven’t been increased imprudently. And in the other hand, firms needto determine if greater flexibility is worth the extra cost.24
2.6 Conclusions- Increase the security in the supply-chain and build a resilient network represent a gooddefense for the next disaster. But more than that, firms can benefit from it and take marketshare from their competitors that have an insecure and rigid supply-chain- As MIT research group on “Supply Chain Response to Global Terrorism” (2003) puts itthere are “different paths toward the same goal”. Their interview toward several bigcompanies has shown that there is not a single way to protect the supply-chain againstrisks. At least actions must be coherent with the company’s characteristics. In order tochoose a relevant strategy, managers need to analyze the different solutions with adaptedtools and frameworks. The objective of the following paragraphs is precisely to illustratethis; the rest of the paper shows how to use real options to study and value flexiblestrategies by applying the method to the particular example of dual sourcing.25
Page 1: Managing Risks of Supply-Chain Disr
Page 4 and 5: AcknowledgementsI would like to exp
Page 6 and 7: 4.2.5 Conclusions .................
Page 8 and 9: List of FiguresFigure 1.1: Strategy
Page 11 and 12: Chapter 1Introduction.Modern supply
Page 13 and 14: - Levels 2 and 3--between these two
Page 15 and 16: 5. In terms of implementation, Forr
Page 17 and 18: Some articles focus precisely on di
Page 19 and 20: 2.3 Secure the Supply-ChainThere ar
Page 21 and 22: 1) Firms need to build a resilient
Page 23: at ports and airports and along the
Page 27 and 28: The most adapted approach (single V
Page 29 and 30: suppliers’. The main objective of
Page 31 and 32: Some people continue to think that
Page 33 and 34: For example, there is no market for
Page 35 and 36: 4.1.3 Option ValueJust like a finan
Page 37 and 38: - I0: initial investmentThe problem
Page 39 and 40: Re plicating portfolio in the up st
Page 41 and 42: Let’s consider a portfolio compri
Page 43 and 44: The differential equation is quite
Page 45 and 46: value of the cash flows of the proj
Page 47 and 48: update their option management stra
Page 49 and 50: Chapter 5OptionModeling Dual-Sourci
Page 52 and 53: We will describe the firm’s curre
Page 54 and 55: investment costs are denotedIMainSu
Page 56 and 57: 5.4 Programming on MatlabTo solve t
Page 58 and 59: Chapter 6Results of the ModelThis c
Page 60 and 61: uses the main supplier its profits
Page 62 and 63: drivers - in particular at the time
Page 64 and 65: what will happen. To hedge this dem
Page 66 and 67: 6.5 Conclusions- Real options allow
Page 68 and 69: market share from its competitor.7.
Page 70 and 71: = 0.99 * ($100) + 0.01* (-$200)= $9
Page 72 and 73: Table 7.1: Assumption on Parameter
Page 74 and 75:
7.2.4 Exploit at maximum real optio
Page 76 and 77:
developed “ a general simulation
Page 78 and 79:
(13) Lee, H.L., Wolfe, M. (2003),
Page 80 and 81:
and Supply Management Course.(38) Z
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to reserve for the future, by maxim
Page 84 and 85:
APPENDIX B: PARAMETER VALUES USED T
Page 86 and 87:
normal or in disruption.The program
Page 88 and 89:
-----------------------------------
Page 90 and 91:
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Page 92 and 93:
% Probability of going from (m,k,j)
Page 94 and 95:
-----------------------------------
Page 96 and 97:
-----------------------------------
Page 98 and 99:
elsevalue.DecOneNormal=3;end-------
Page 100 and 101:
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