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The importance of decoupling recurrent and disruption risks in a supply chain
Article first published online: 22 MAR 2007
DOI: 10.1002/nav.20228
Copyright © 2007 Wiley Periodicals, Inc.
Additional Information
How to Cite
Chopra, S., Reinhardt, G. and Mohan, U. (2007), The importance of decoupling recurrent and disruption risks in a supply chain. Naval Research Logistics, 54: 544–555. doi: 10.1002/nav.20228
Publication History
- Issue published online: 2 JUL 2007
- Article first published online: 22 MAR 2007
- Manuscript Accepted: 20 JAN 2007
- Manuscript Revised: 22 DEC 2006
- Manuscript Received: 19 SEP 2005
- Abstract
- References
- Cited By
Keywords:
- supply chain risk;
- disruption;
- dual sourcing;
- inventory management
Abstract
This paper focuses on the importance of decoupling recurrent supply risk and disruption risk when planning appropriate mitigation strategies. We show that bundling the two uncertainties leads a manager to underutilize a reliable source while over utilizing a cheaper but less reliable supplier. As in Dada et al. (working paper, University of Illinois, Champaign, IL, 2003), we show that increasing quantity from a cheaper but less reliable source is an effective risk mitigation strategy if most of the supply risk growth comes from an increase in recurrent uncertainty. In contrast, we show that a firm should order more from a reliable source and less from a cheaper but less reliable source if most of the supply risk growth comes from an increase in disruption probability. © 2007 Wiley Periodicals, Inc. Naval Research Logistics, 2007