Proactive disruption impact assessment in manufacturing supply networks

ABSTRACT Companies are increasingly exposed to the risk profile of their supply network and managing this risk is gaining in importance in a tightly interconnected global and competitive business environment. More frequent and more severe supply disruptions have led to a growing interest in assessing their potential consequences. Therefore, in this paper four supply disruption indicators are derived to proactively assess the potential financial impact of supply disruptions. The stochastic nature of potential supply disruptions is modelled by adopting a Monte-Carlo and Value-at-Risk simulation approach: Quantitative, objective data and qualitative, subjective estimates by managers are combined to improve proactive risk-related decision-making at a company level. The developed methodology for deriving the supply disruption indicators is applied to a case study in a German manufacturing company in order to quantitatively assess differences in the disruption risk structures of various supply relations. The results of the study show that a Value-at-Risk approach based on Monte-Carlo simulation can be effectively adopted to assist supply managers in proactively identifying suitable risk mitigation strategies.