Selection of Primary and Recovery Supply Portfolios and Scheduling

A novel computationally efficient portfolio approach to supplier selection in the presence of supply chain disruption risks is proposed, where the selection of supply portfolios for parts is combined with production scheduling of finished products. Unlike most of reported research on the supply chain risk management which focuses on the risk mitigation decisions taken prior to a disruption, the proposed portfolio approach combines decisions made before, during, and after the disruption. The two decision-making approaches are considered: an integrated approach with the perfect information about the future disruption scenarios and a hierarchical approach with no such information available. In the integrated approach, which accounts for all potential disruption scenarios, the primary supply portfolio that will hedge against all scenarios is determined along with the recovery supply portfolio and production schedule for each scenario. For the integrated and the hierarchical decision-making, stochastic mixed integer programming models are developed with the two risk-neutral conflicting objectives that account for both time and cost of recovery: minimizing expected cost or maximizing expected service level. In addition, the integrated approach is applied for a risk-averse decision-making to minimize conditional cost-at-risk or maximize conditional service-at-risk. The findings indicate that the integrated decision-making selects a more diversified primary supply portfolio than the hierarchical approach and when all primary suppliers are shut down by disruption, a single sourcing recovery portfolio is usually selected. Additional managerial insights are summarized at the end of this chapter.