Risk management of supply chain disruptions: An epidemic modeling approach

Quality issues in supply networks can adversely affect the performance of suppliers and their down-stream customers. Since suppliers might fail to comply with quality guidelines, decentralized quality controls by each firm in a supply network may be insufficient; thus, a complete network perspective on risk management could help to minimize supply disruptions. Here, we develop a novel modeling framework drawing on epidemiology, to demonstrate how network structure impacts the propagation of quality issues-akin to the spread of an infectious disease. We formulate an SIS model in which nodes represent individual suppliers while directed edges represent the movement of goods between suppliers; these nodes can be either susceptible (S) to or infected (I) by a disruption. Applying the model to 21 real -world networks, we find that a quality issue's magnitude depends strongly on its origin node and the network archetype. The network's maximum Authority value-based on the relationship between relevant authoritative nodes and hub nodes - is highly correlated with the extent of a supply disruption in our sim-ulation. We examine different network-level strategies for containing an outbreak and find that improving quality control at critical nodes -those characterized by a high Authority value or customer proximity-is an effective measure. Adjusting the network structure by focusing on an upstream-centric flow of goods, thereby reducing the maximum Authority value, decreases vulnerability to quality issues. Managers can reduce the impact of quality disruptions through a combination of conventional firm-level strategies and novel network risk management strategies.(c) 2022 Elsevier B.V. All rights reserved.