The power of flexibility for mitigating supply chain risks

Abstract

Lee (2004) articulated that alignment, adaptability, and agility are the basic ingredients for managing supply chain risks. While it is clear that flexibility (agility) enhances supply chain resiliency, it remains unclear how much flexibility is needed to mitigate supply chain risks. Without a clear understanding of the benefit associated with different levels of flexibility, firms are reluctant to invest in flexibility especially when reliable data and accurate cost and benefit analysis are difficult to obtain. In this paper, we present a unified framework and 5 stylized models to illustrate that firms can obtain significant strategic value by implementing a risk reduction program that calls for a relatively low level of flexibility. Some of our model analyses are based on or motivated by models presented in recent literature. Our findings highlight the power of flexibility, and provide convincing arguments for deploying flexibility to mitigate supply chain risks.

Managing risks in the Indonesian seaweed supply chain

“…Some papers, however, do focus on how a company should respond to supply and demand risks (Demirel 2012;Mitchell 1995;Tomlin 2006;Wang et al 2010;Zsidisin et al 2004;Zsidisin et al 2000). Flexible strategies are most commonly discussed by scholars as a way to mitigate risks in industrial supply chains (Sodhi and Tang 2012;Tang and Tomlin 2008). Some researchers also incorporate a decision model to determine the most appropriate mitigation method (Demirel 2012;Faisal et al 2007;Wang 2014).…”

Communicating supply chain risks and mitigation strategies: a comprehensive framework

“…With the increasing trend of collaboration with international supply partners and extended supply networks, it also brings uncertainties that significantly threaten normal business operations of the organizations in the supply chain. The sources of uncertainty are often classified into three categories: supply, process and demand (Lee and Billinton 1993;Childerhouse and Towill 2002;Ho et al 2005;Tang and Tomlin 2008). Supply uncertainty is often caused by variability brought by the suppliers such as the faults or delays in delivery.…”

“…A growing number of studies look into risk from different perspectives including economics, finance and international management (Jüttner, 2005). SCM scholars tend to focus on risks associated to supply and demand coordination and uncertainty (Nagurney et al 2005;Cigolini and Rossi 2006;Tang and Tomlin 2008;Xia and Chen 2011;Chan and Wang 2013) and disruption risks that are caused by labour strike, natural disaster, and terrorism (Kleindorfer and Saad 2005;Tang 2006a;Knemeyer et al 2009;Wagner et al 2014). For instance, Nagurney et al (2005) incorporated both demand and supply side risk sin the development of a supply chain network model.…”

“…For instance, Nagurney et al (2005) incorporated both demand and supply side risk sin the development of a supply chain network model. Tang and Tomlin (2008) explored the role of flexibility strategies in managing risks associated to demand, supply, and process. The vulnerability of supply chains to disruption risks is increased due to the globalisation and business initiatives such as lean operation.…”

“…To mitigate the negative impacts of supply chain risks, researchers have proposed various strategies such as the real option (Cucchiella and Gastaldi 2006), flexibility (Tang and Tomlin 2008), and buffer strategies (Chopra and Sodhi 2004). In order to adapt quickly and effectively to the changing environment, supply chains need to be flexible and work in a more collaborative manner.…”