The moderating impact of supply network topology on the effectiveness of risk management

05 Apr 2018

While supply chain risk management offers a rich toolset for dealing with risk at the dyadic level, less attention has been given to the effectiveness of risk management in complex supply networks. We bridge this gap by building an agent based model to explore the relationship between topological characteristics of complex supply networks and their ability to recover through inventory mitigation and contingent rerouting. We simulate upstream supply networks, where each agent represents a supplier. Suppliers’ connectivity patterns are generated through random and preferential attachment models. Each supplier manages its inventory using an anchor-and-adjust ordering policy. We then randomly disrupt suppliers and observe how different topologies recover when risk management strategies are applied. Our results show that topology has a moderating effect on the effectiveness of risk management strategies. Scale-free supply networks generate lower costs, have higher fill-rates, and need less inventory to recover when exposed to random disruptions than random networks. Random networks need significantly more inventory distributed across the network to achieve the same fill rates as scale-free networks. Inventory mitigation improves fill-rate more than contingent rerouting regardless of network topology. Contingent rerouting is not effective for scale-free networks due to the low number of alternative suppliers, particularly for short-lasting disruptions. We also find that applying inventory mitigation to the most disrupted suppliers is only effective when the network is exposed to frequent disruptions; and not cost effective otherwise. Our work contributes to the emerging field of research on the relationship between complex supply network topology and resilience.