in Wiley Online Library (wileyonlinelibrary.com) Increased uncertainty in recent years has led the supply chains to incorporate measures to be more flexible in order to perform well in the face of the uncertain events. It has been shown that these measures improve the performance of supply chains by mitigating the risks associated with uncertainties. However, it is also important to assess the uncertainty under which a supply chain network can perform well and manage risk. Flexibility is defined in terms of the bounds of uncertain parameters within which supply chain operation is feasible. A hybrid simulation-based optimization framework that uses two-stage stochastic programming in a rolling horizon framework is proposed. The framework enables taking optimum planning decisions considering demand uncertainty while managing risk. The framework is used to study the trade-offs between flexibility, economic performance, and risk associated with supply chain operation. V C 2015 American Institute of Chemical Engineers AIChE J, 61: 4166-4178, 2015 Keywords: supply chain management, flexibility, risk, hybrid simulation-based optimization
IntroductionMany of the supply chains today are very efficiently designed and operate to maintain consistent low cost, and high customer satisfaction. Over the years, there have been tremendous advances in the field of information technology and with it, supply chains have become much more globalized and complex. Increased globalization leads to increased uncertainty, which has altered the way supply chain management has been considered in the recent past. The need for flexible design and operation has gained attention as an approach to offset the uncertainties in supply chain environment.In an uncertain environment, the idea that supply chains can be optimized to account for all possible scenarios is not realistic. Companies need to incorporate flexibility in their supply chains in order to adapt to the changing circumstances. Uncertain conditions increase the vulnerability of supply chains to failures. Moreover, companies have been transformed from monolithic supply chains to smaller, distributed, more flexible networks. The more complex, global, and interdependent the supply chain, the more vulnerable it becomes to uncertainties and has a higher exposure to risk. Complex networks make it more difficult to identify all the vulnerabilities in the network and manage the risk due to increased number of suppliers. Outsourcing is used as a cost-effective measure but it can also result in the inclusion of more volatile suppliers. "Just in time" approach followed by lean systems makes the supply chain more efficient but it can expose also weaknesses in the supply network due to decreased inventory and capacity. It is important to assess the impact of uncertainties on the performance of the supply chain network and how the network operates to cope with uncertainties.Mitigation of risks in the area of supply chains has gained so much attention that it has led to the development of a separat...