Budget allocation in coping with supply chain disruption risks

Abstract

Disruption management, as an important research topic, has attracted scholars’ broad attention in recent years due to the increasing exposure of disruption risks in supply chains. To date, researches in this field often focus on either prevention or mitigation measures and the budget allocation problem is paid relatively little attention. This paper therefore proposes an approach to determine the optimal budget allocation based on prevention measures in combination with mitigation measures. First, considering different disruption situations, the bow-tie is applied to developing the disruption management frameworks that integrate risk prevention and risk mitigation. Second, the corresponding optimization models are formulated to determine the optimal budget allocation plans. In order to validate the proposed approach, we compare the computation results with those obtained from the prevention approach and the mitigation approach. Also, random experiments are conducted to analyse the impacts of randomly generated disruption and response scenarios. Finally, a real-life case is provided to testify the usefulness and merits of our proposed approach. The results show that the proposed approach can help decision-makers reduce more loss caused by the disruption risks.

Keywords:

• budget allocation
• risk response
• supply chain disruption (SCD)
• bow-tie approach
• optimization model