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Supply chain risk management via correlated scenario analysis

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  • Erhan Deniz
  • James T. Luxhoj

Abstract

In this paper, we study a comprehensive Supply Chain (SC) optimisation model that incorporates the uncertainty associated with demand, market price, supply and procurement costs. A number of correlated scenarios are built each of which represents a set of possible realisations of those random factors. Taking a stochastic programming approach, the variables and parameters are transformed into a Mixed Integer Programming (MIP) model, where the objective is to maximise the net present value of the cash flow for the whole SC over a finite planning horizon. The proposed model provides a useful tool for both strategic (e.g. locations and capacities of facilities) and operational (e.g. material flow) SC decision making.

Suggested Citation

  • Erhan Deniz & James T. Luxhoj, 2008. "Supply chain risk management via correlated scenario analysis," International Journal of Integrated Supply Management, Inderscience Enterprises Ltd, vol. 4(3/4), pages 278-302.
    • Handle: RePEc:ids:ijisma:v:4:y:2008:i:3/4:p:278-302
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