Capacity Scalability in Robust Design of Supply Flow Subject to Disruptions

Within the last decade, several cases of the supply chain vulnerability to major disruptions have been observed. The typical mitigation strategies such as safety inventory and excess capacity are inadequate to cover the major disruptions. Furthermore it is not economical to invest in such costly proactive strategies to recover from infrequent disruptions. The objective of this paper is to provide a decision making tool achieving robust supply flow by incorporating strategic stock and reconfigurable back-up supplier in mitigating disruptions. We consider a firm with two suppliers where the main supplier is cost-effective but prone to disruptions and the back-up supplier is reliable but expensive due to re-configurability characteristics. We present a multi-stage robust optimization model to determine optimal strategic stock levels and layout configuration of the back-up supplier for a supply chain subject to random realization of disruptions and available capacity during the ramp-up time. Furthermore, the partial available capacity of the backup supplier during the response time has been modelled using queuing theoretical models. The results show the optimality of highly scalable configuration as the decision maker becomes more risk averse.