Modeling risk in a Design for Supply Chain problem

• Developed a Design for Supply Chain (DFSC) and risk model.
• Model analyzes product design, supply chain design and risk concurrently.
• New Product Development risks in model: time-to-market, demand risk.
• Supply chain risks: supplier reliability, strategic exposure, supplier capacity.
• Analysis shows importance of concurrently considering risk.

The objective of Design for Supply Chain (DFSC) is to design a supply chain in parallel to designing a new product. Risk is an inherent element of this process. Although supply chain risk models and product development risk models are available, there are few models that consider the combined effect of risk to product development and the supply chain. This gap is filled by the development of a DFSC and risk model that looks at design, supply chain and risk concurrently. The model consists of two components. First, a Mixed Integer Programming (MIP) model makes the DFSC decisions while simultaneously considering time-to-market risk, supplier reliability risk and strategic exposure risk. The results from the MIP are then used in the second model component which is a discrete event simulation. The simulation tests the robustness of the MIP solution for supplier capacity risk and demand risk. When a decision maker is potentially facing either of these risks the simulation shows whether it is best to use an alternative solution or proceed with the MIP solution. The model provides analytical results, but also allows decision makers to use their own judgment to select the best option for overall profitability. In conclusion, testing shows that risk mitigation strategies can and should be determined from the DFSC and risk model, but that they will be dependent on the specific design problem being solved.