Robust supply chain design: a strategic approach for exception handling

Abstract

In this paper, we develop a framework for robust supply chain design, i.e., to build supply chains, which can handle disruptive events with minimal loss. There are two obvious steps to handle exceptions: (1) to design chains with built in risk-tolerance; and (2) to contain the damage once the undesirable event has occurred. In this paper, we consider design of robust (to risks) supply chains. First, we identify all the critical undesirable events that can occur at various stake holders and their interfaces and map out how each of them propagates through the supply chain. In this way, we identify the critical exceptions for various partners of the chain and understand the impact of all these exceptions, particularly on the supply. We develop a simple mixed integer programming optimization model, adapted from the credit risk minimization model, for partner selection as a means towards robust supply chain design. We choose the partners so that the effect of exceptions on the supply chain is minimized.