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In this study, we examine the optimal allocation of demand across a set of suppliers in a supply chain that is exposed to supply risk and environmental risk. A two-stage mixed-integer programming model is used to develop a flexible sourcing strategy under disruptions. Our model integrates supplier selection and demand allocation with transportation channel selection and provides contingency plans to mitigate the negative impacts of disruptions and minimise total network costs. Finally, a numerical example is presented to illustrate the model and provide insights. The findings suggest that developing contingency plans using flexibility in suppliers' production capacity is an effective strategy for firms to mitigate the severity of disruptions. We also show that flexibility and reliability of the suppliers and regions play a significant role in determining contingency plans for during disruption. Findings generally show that highly flexible suppliers receive less allocation, and their flexible capacity is reserved for disruptions. For firms that do not incorporate risk management into supplier selection and allocation, the recommendation is to source from fewer, more reliable suppliers with less risk of disruption. Our findings also emphasise that the type of disruption has important implications for supplier selection and demand allocation. This study highlights the supply chain risk management strategy of regionalising as a means for minimising the impact of environmental disruptions.

We assess the effectiveness of incorporating three types of redundancy practices(pre-positioning inventory, backup suppliers, and protected suppliers) intoa firm's supply chainthat isexposed to two types of risk: supply risk and environmental risk. Supply risk disrupts an individual supplier, while environmental risk makes a number of suppliers in a given region unavailable.An additional factor is supplier interdependence,where a disruption in one supplier may also disrupt other active suppliers. Utilizing the concept of a decision tree to capture different disruption scenarios, we develop a two-stage mixed-integer programming (two-stage MIP) model as a General Model to address the problem of supplier selection and order allocationunder supplier dependencies and risk of disruptions.In the General Model, multi-sourcing is the only supplier strategy that the firm implements. Then we develop three separate extensions of theGeneral Model,one foreach of the three redundancy practices, and evaluate the expected supply chain costof each extended model. We quantitatively show how adding redundancy to the supply chain in different forms, along with contingency plans, can help firms mitigate the impact of supply chain disruptions.The findings suggest thatall three strategies reduce costs and risks compared to the General Model. An analysis of reliability, risks, dependence, and costs is conducted on each strategy to provide insights into supplier selection, demand allocation, and capability development in a supply chain under supply chain risks.Finally, we show that regionalizinga supply chain is an effective way to mitigate the negative impacts ofenvironmental disruptionson the supply chain.

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