Simulating severe supply chain disruptions with multiple suppliers and firms
Global supply chains are susceptible to disruptions. Disruptions in one part of the world can lead to supply chain problems for companies around the world. This creative component analyzes a model of severe supply chain disruptions where several suppliers encounter inoperable facilities, resulting in potential shortages for firms which purchase from those suppliers. All entities within the model are able to choose strategic initiatives to maintain operations. If an entity’s facility is closed because of a disruptive event, the entity can choose to move production to an alternate facility. If an entity’s facility is undamaged, the entity can experience a supply shortage but may be able to use inventory or buy from an alternate supplier in order to mitigate the disruption. A simulation based on the 2011 Japanese earthquake and tsunami, where several key companies in the automotive, electronics, gaming, and camera industries have closed facilities, is applied to the model. The results demonstrate that on average all the industries are able to meet almost 100% of demand during the simulation; however, individual firms may suffer heavily and lose customers to other firms. Sensitivity analysis is conducted to understand the impact of the probability of a facility reopening, the cost of moving production to an alternate facility, the amount of inventory available, and a firm’s desire to trade off between meeting demand and maximizing profit.