Entropy assessment of supply chain disruption

Abstract

PurposeManufacturing organizations and networks are heavily dependent on the flow of information within and across organization boundaries. A disruption in information flow might interrupt the operations of the organization and make management even more difficult. The purpose of this paper is to incorporate information theory approach to investigate the perturbation introduced into a manufacturing organization as a result of disruption in the flow of critical information needed in manufacturing operations.Design/methodology/approachThis study proposes the use of entropy theory to assess the level of risk introduced by different sources of perturbation into the material flow stream and the use of discrete event simulation to investigate the impact of the resulting disruption on collaborating members.FindingsThe result of the analysis carried out on the effect of system failure on supply chain performance revealed that the retailer experiences the most uncertainty in the supply chain while the holding cost constitutes the most unpredictable cost measure when a system failure breach occurs. For the manufacturer and wholesaler, the holding cost is responsible for most of the uncertainty in predicting the impact of the threat on inventory management cost, while the backlog cost holds the highest complexity level for the retailer.Practical implicationsOnce this methodology is well developed for use in industrial networks, it can serve as a risk assessment, risk monitoring and risk prediction tool. The paper also calls for a proactive approach to disruption risk management.Originality/valueThis paper proposes a novel approach to assess the impact of information disruption, using entropy theory coupled with simulation methodology.