Keep Your Friends Close? Supply Chain Design and Disruption Risk

Abstract

ABSTRACTIn this article, we evaluate the relationship between supply chain design decisions and supply chain disruption risk. We explore two supply chain design strategies: (i) the dispersion of supply chain partners to reduce supply chain disruption risk versus (ii) the co‐location of supply chain partners to reduce supply chain disruption risk. In addition, we assess supply chain disruption risk from three perspectives: the inbound material flow from the supplier (supply side), the internal production processes (internal), and the outbound material flow to the customer (customer side) as a disruption can occur at any of these locations. We measure disruption risk in terms of stoppages in flows, reductions in flow, close calls (disruptions that were prevented at the last minute), disruption duration (time until normal operation flow was restored), and the spread of disruptions all the way through the supply chain. We use seemingly unrelated regression (SUR) to analyze our data, finding that lead times, especially supply side lead times, are significantly associated with higher levels of supply chain disruption risk. We find co‐location with suppliers appears to have beneficial effects to the reduction of disruption duration, and, overall supply side factors have a higher impact when it comes to supply chain disruption risk than comparable customer side factors.