Importance of Decoupling Disruption and Recurrent Risk in a Supply Chain, Naval Research Logistics Quarterly
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.
Sunil Chopra, Gilles Reinhardt, Usha Mohan
Chopra, Sunil, Gilles Reinhardt, and Usha Mohan. 2007. Importance of Decoupling Disruption and Recurrent Risk in a Supply Chain. Naval Research Logistics Quarterly . 54(5): 544-555.