Build-to-order supply chain network design under supply and demand uncertainties

Supply chain disruptions are unintended, unwanted situations resulting in a negative supply chain performance. We study the supply chain network design under supply and demand uncertainty with embedded supply chain disruption mitigation strategies, postponement with downward substitution, centralized stocking and supplier sourcing base. We designed an integrated supply-side, manufacturing and demand-side operations network in such that the total expected operating cost is minimized. We modeled it in a deterministic equivalent formulation. An L-shaped decomposition with an additional decomposition step in the master problem is proposed. The computational results showed that parallel sourcing has a cost advantage against single sourcing under supply disruptions. In addition, the build-to-order (BTO) manufacturing mitigation process has its greatest impact with high variations on demands and is integrated with the component downward substitution. Lastly, the manufacturer needs to order differentiated components to cover its requirement for maximal product demand to prevent the loss of sale, even with fewer modules in stock.

Research highlights
► Benefits of Build-to-order are most evident when there is high variation in demand.
► BTO prevents loss of sale by carrying excess differentiated components.
► BTO orders high-end components for maximal demand or for downward substitution.
► A secondary supplier is critical even if the primary supplier is unlikely to fail.