A two-period model for selection of resilient multi-tier supply portfolio

Abstract

A two-period decision-making model is developed for selection of resilient supply portfolio in a multi-tier supply chain under disruption risks. The planning horizon is divided into two aggregate periods: before and after the disruption. The resilience of the supply chain is achieved by selection ahead of time primary supply portfolio and by pre-positioning of risk mitigation inventory of parts at different tiers that will hedge against all disruption scenarios. Simultaneously, recovery and transshipment portfolios are determined for each disruption scenario and decisions on usage the pre-positioned inventory are made to minimise expected cost or maximise expected service level. Some properties of optimal solutions, derived from the proposed model provide additional managerial insights. The findings also indicate that the developed portfolio approach with an embedded network flow structure leads to computationally efficient stochastic mixed integer program with a strong LP relaxation.

Keywords:

• Supply chain risk management
• multi-tier supply chain
• portfolio approach
• stochastic mixed integer programming

Acknowledgments

The author is grateful to two anonymous reviewers and an associate editor for reading the manuscript carefully and providing constructive comments which helped to improve this paper.

Disclosure statement

No potential conflict of interest was reported by the author.

ORCID

Tadeusz Sawik  http://orcid.org/0000-0002-6054-550X