Abstract
Purpose: Recent years have witness the pervasive supply disruptions and their impacts on supply chain performance. It is significant for enterprises to adopt comprehensive measures to cope with supply disruptions. The purpose of this study is to investigate how BI insurance make up the shortage of emergency supply and affect the expected profit of enterprises. Design/methodology: This study develops the penalty cost function on the basic of the financial costs caused by the interruption losses, introduces variables of BI insurance and operational measures, establishes the profit model with BI insurance or not. Findings: Through the proof and analysis, it is demonstrated that BI insurance can mitigate the adverse effect of the increasing cost for expected profit. And this study finds that the value of BI insurance is higher when interruption probability is lower and penalty coefficient is higher. Originality/value: In this study, it is investigated that the impact of business interruption (BI) insurance on supply disruptions and its complementary value against the higher purchase cost of emergency sourcing strategy. BI insurance is an efficient measure for supply interruption and should be adopted correctly to play a role in managing supply disruption risk.
Highlights
With the development of economic globalization, supply chains have become highly complex under uncertainties of the operating environment and vulnerability of supply system
Interaction between Business interruption insurance (BI) Insurance and Emergency Supply Theorem 1: The manufacturer's expected profit decreases as emergency procurement cost increases, but BI insurance can slow down the decrease, and the greater the emergency procurement cost is, the trend of slowing down is more obvious
In this paper, we investigate the complementary role of BI insurance for emergency supply measure
Summary
With the development of economic globalization, supply chains have become highly complex under uncertainties of the operating environment and vulnerability of supply system. Business interruption insurance (BI) is more and more favored and has played a huge role in reducing the loss of supply interruption. Due to supply disruptions of Philips mobile phone chip in 2000, Ericsson received $20 million from business interruption insurance, and Nokia promptly took another active emergency supply measure. Business interruption insurance can play a greater role if it is combined with other effective operational measures. The complementary role of business interruption insurance for operational measure and its value are explored. It will enhance the importance of manufacturer for BI insurance. The integrated measure can play a more effective role when business interruption insurance and emergency measures are combined
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