Supply chain redesign implications to information disruption impact

Abstract

Over the years, supply chain reconfiguration decisions have been solely based on operational risk. Simplification strategies, such as horizontal mergers, and networking strategies, such as risk pooling, are conflicting paradigms that have been shown to improve financial performance of supply partners. The implication of this to disruption risk is not fully known, especially as it concerns information security breach (ISB). Analysts have rated ISB as a huge disruption risk, costing businesses millions of dollars. Using a credible and well-established agent-based simulation approach and statistical analysis, we examine the impact of ISB on the simplification and risk pooling strategies respectively under three different order replenishment systems. The effect of reconfiguring the supply chain is first examined in a non-security breach scenario and then in a breached scenario. We find that reconfiguration has no benefit to a supply chain using a parameter based replenishment policy (option I), in both breach and non-breach situations, but leads to significant advantage when batch ordering model (option II) or a combined batch-and-parameter based ordering policy (option III) is used. We also established that batch ordering system favours the risk pooling strategy whereas a combined batch-and-parameter ordering system favours the simplification counterpart especially when the simplification is at the wholesaler tier. This study has significant implications for supply chain design as well as information security priorities. This is one of the first papers to look at how ISB impacts supply chain configuration and the role of ordering decision context.