Enhancing resilience: model-based simulations

Abstract

PurposeIn light of the recently experienced systemic shocks (the COVID-19 pandemic and the war in Ukraine), we investigate supply chain robustness. We aim to understand the potential consequences of uncertain events or adversary’s action on critical supplies in the Alliance.Design/methodology/approachWe leverage a parsimonious supply chain model and investigate the relationship between upstream supplier concentration/diversification and the supply chain’s robustness (survival probability) in the presence of uncertain systemic shocks. In several scenarios of shock events, we simulate alternative input sourcing strategies in the presence of uncertainty.FindingsA firm-level cost-focused optimisation may lead all upstream suppliers to concentrate in one location, which – when subsequently hit by a shock – would result in a disruption of the entire supply chain. A chain-level forward-looking optimisation diversifies the upstream supplier location and sourcing decisions. As a result, the supply chain’s survival probability is maximised, and critical supplies will continue even under the most demanding circumstances.Research limitations/implicationsOur findings encourage political and military decision makers to enhance upstream supply chain robustness in critical and strategic sectors, such as the diversification of nitrocellulose supplies currently sourced almost exclusively from China by European gunpowder manufacturers.Practical implicationsOur findings have direct recommendations to supply chain downstream decision makers and to the government’s policy choices. Since global supply chain (GSC) disruptions in critical sectors may have catastrophic impacts on social welfare and the probability of shocks such as COVID-19 and Russia’s war may not be known even approximately, robust decision rules seem to be the appropriate tools for policymaking in critical and strategic sectors such as energy supplies, food and water, communication and defence. A robust supply chain is one in which the survival probability is maximised, which we show in a central planner strategy’s simulations.Originality/valueThe paper shows formally why a market-based global input sourcing strategy may be efficient from an individual firm’s perspective but may be suboptimal from a societal resilience perspective.