Modelling supply chain disruption: Dual sourcing strategies using information on disruption discovery and recovery

Supply disruption has been recognised as one of the main reasons for financial and operational losses in supply chain networks. Despite this, most firms fail to think strategically and systematically about managing supply disruption risk, with most of the supply chain management effort concentrated on reducing operational costs rather than managing disruption. This paper investigates the importance of information about disruption discovery and recovery for supply chain management using a Markov decision process model that incorporates key elements of supply disruption and inventory management. The decisions that a firm faces during periods of supply disruption are examined leading to an assessment of how information about the risk of disruption and length of recovery influences sourcing and purchasing strategy. The model also considers how disruption to one part of the supply network affects the performance of other suppliers, a factor that is often overlooked in the literature.