Roles of inventory and reserve capacity in mitigating supply chain disruption risk.

We offer the notion of “commons” at different levels—within company, private across company, and government‐sponsored across‐industry sectors—and discuss how the creation of such commons enabled firms to be both efficient during normal times and resilient against the disruptions resulting from COVID‐19. At the same time, there are many proven strategies providing resilience in supply chains. For instance, companies that used multiple channels to improve efficiency when facing day‐to‐day demand‐and‐supply variations found that the structure also offered resilience without additional cost when COVID struck. We discuss how the presence of commons lowers the cost for firms to adopt such resilience‐building supply chain strategies. We discuss factors that impact the creation of these commons and conclude with a number of questions to guide further research into the role of industry commons in facilitating supply chain resilience.

This paper is inspired by a risk management problem faced by a leading pharmaceutical company. Key operational risk mitigation measures include Risk Mitigation Inventory (RMI), Dual Sourcing and Agility Capacity. We study the relationship between these three measures by modeling the drug manufacturing firm that is exposed to supply chain disruption risk. The firm determines optimal RMI levels for assumed Dual Sourcing and Agility Capacity. We quantify the decrease in RMI levels in the presence of Dual Sourcing and Agility Capacity. Furthermore, using an example, we analyze RMI, Dual Sourcing and Agility Capacity decisions jointly. It turns out that RMI and Agility Capacity can be substitutes as long as no Dual Source is available.Once the Dual Source is available, Agility Capacity and Dual Sourcing appear to be substitutes. We further show that for long disruption times, the optimal Dual Source production rate may decrease in the disruption time. Within our modeling framework, we introduce an operational metric that quantifies Supply Chain Resilience. Supply chain disruptions can have a severe business impact and need to be managed appropriately.

We focus on the optimal use of risk mitigation inventory (RMI) and reserve capacity to manage disruption risk in serial multi‐stage supply chains where product transformation occurs at each stage. We find that under reasonable conditions it is better to hold more RMI downstream than upstream even when the upstream holding costs are lower. We also find that it is often optimal to hold more reserve capacity downstream than upstream. While in one‐stage supply chains RMI and reserve capacity always behave as substitutes, it turns out that in multi‐stage serial supply chains the interplay between RMI and reserve capacity is more nuanced. We find that echelon RMI and reserve capacity at each stage are substitutes. In contrast, RMI at a stage complements reserve capacity at the adjacent downstream stage.