Disruption Risk Mitigation in Supply Chains: The Risk Exposure Index Revisited

In recent years, supply chains are more prone to disruptions. The impact on performance depends on the system's ability to discover and then recover after the disruption has occurred. In this paper, we proposed a new method to integrate probabilistic assessment of disruption risks into the Risk Exposure Index (REI) approach proposed previously by Simchi-Levi et al. and measure supply chain resiliency by analyzing the worst-case CVaR (WCVaR) of total lost sales under disruptions. We show that the optimal strategic inventory positioning strategy in this model can be fully characterized by a conic program. The optimal primal and dual solutions to the conic program can be used to shed light on comparative statics in the supply chain risk mitigation problem. This information can help supply chain risk managers focus their mitigation efforts on critical suppliers and/or installations that will have greater impact on the performance of the supply chain when disrupted.