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Journal of Industrial and Production Engineering

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A study on the risk control of supply chain under


the background of globalization

Yong-fei Ma, Li-wen Chen, Shao-dong Meng & Cong-qin Yi

To cite this article: Yong-fei Ma, Li-wen Chen, Shao-dong Meng & Cong-qin Yi (2014) A study on
the risk control of supply chain under the background of globalization, Journal of Industrial and
Production Engineering, 31:4, 221-228, DOI: 10.1080/21681015.2014.934304

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Published online: 14 Jul 2014.

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Download by: [Universiti Sains Malaysia] Date: 24 November 2016, At: 18:50
Journal of Industrial and Production Engineering, 2014
Vol. 31, No. 4, 221228, http://dx.doi.org/10.1080/21681015.2014.934304

A study on the risk control of supply chain under the background of globalization
Yong-fei Maa, Li-wen Chena*, Shao-dong Mengb and Cong-qin Yic
a
School of Economics and Management, Hebei University of Technology, China; bShangHai Customs College, ShangHai, China;
c
ShangHai Customs College, GuiZhou University, ShangHai, China
(Received August 2013; revised March 2014; accepted May 2014)

Using modeling approach of the complex network to construct a supply chain network model, this paper has mainly
studied the problem of disruption risk control of supply chain under the background of globalization. The simulation
result of the supply chain network model showed that the supply chain network is scale-free. The key nodes in the
supply chain network can be identied by calculating the centrality of the nodes. Detailed results demonstrated that the
ability of resist disruption risks and the network resilience of a supply chain can be improved by adding redundancy of
the supply chain network and keeping a high level of collaborative working of the key suppliers.
Keywords: risks control; supply chain; complex network; key nodes

1. Introduction takes place. So, disruption risks have received increasing


The increased globalization affects the supply chain both attention in the last several years.
on the market side and on the supply side [5]. Modern Using complex theory, we can trace the root source
commercial supply chains are in fact dynamic networks of supply chain risk from a holistic view, probe the
of interconnected rms and industries [2]. Simulta- dynamic behavior on the supply chain network, analyze
neously, the complex structure of the supply chain, infor- the vulnerability and robustness in supply chain node,
mation asymmetry, and the instability of the external research the spread of risk in the supply chain and the
environment make the supply chain increasingly vulnera- risk-resisting ability of the supply chain network, explore
ble to the invasion of various risks, and subject to such the mechanisms of competition and coordination between
inuences to a different extent. The inuence on the members of the supply chain, and provide the basis for
automotive supply chain, triggered by the 2011 Japanese supply chain network optimization.
tsunami (following an earthquake) and the subsequent
Fukushima nuclear power plant spillage, was far beyond
2. Supply chain risk
the expectation of the industry. Because of its special
position in the world automotive industry, the problems 2.1. Disruption risks in supply chain
that Japans automotive industry suffered caused by natu- Some serious events, such as the 9/11 event, oods in
ral disasters have been responsible for serious damage to Thailand, the severe acute respiratory syndrome outbreak
the industry worldwide [7]. This incident once again in China, the earthquake in Taiwan, the tsunami and
proved that once a catastrophe has occurred, supply earthquake in Japan, and other such events present sup-
chain would suffer damage and huge losses inevitably. ply chain management with a huge challenge proving
Thus, supply chain risk management is of widespread that the supply chain is fragile, in particular due to envi-
concern to academia and industry [10]. ronmental disruptions beyond its control [8]. Recent
Disruption risks essentially belong to a type of sup- events illustrate that disruptions in supply chain that
ply chain risk, which is an unpredictable event caused might easily and rapidly spread and amplify up and
by human or natural factors that leads to a link or node down the supply chain have severe negative conse-
failure in the supply chain including logistics, produc- quences. In a survey at Global 1000 companies, supply
tion, information ow, capital ow, or a fundamental chain disruptions were perceived as the single biggest
change in the supply chain system. Natural disasters, threat to their companies revenue streams. Manchester
operational accidents, terrorism, political instability, and Business School of the UK developed a unique event
the complex relationships between the members of the database, which currently holds some 2500 supply chain
supply chain system (both cooperation and competition) disruptions that occurred around the world between 2000
are the important factors driving the supply chain disrup- and 2009. Supply chain disruptions may have impacts
tion risk, which has occurred. With longer paths and that propagate not only locally but also globally and,
shorter clock speeds, there are more opportunities for hence, a holistic, system-wide approach to supply chain
disruption and a smaller margin for error if a disruption network modeling and analysis is essential in order to be

*Corresponding author. Email: kevin_shc@yahoo.com


2014 Chinese Institute of Industrial Engineers
222 Y.-f. Ma et al.

able to capture the complex interactions among consequences for the individual company, the supply
decision-makers [15]. chain, and society. In supply networks, complexity
The complexity associated with multiple hand-offs in regards both the complexity of the supply network struc-
global supply chain increases the probability of disrup- ture and the complexity of the relationships among sup-
tions [9]. Supply chain disruptions are the result of risks ply network members [3]. Experts agree that supply
in supply chain risk, often engendered suspends or fail- chain complexity is real and that it negatively impacts
ure of the supply chain, logistics, production, informa- business. They acknowledge that the real causes of com-
tion ow, and capital ow. The important factor-driven plexity are many and varied: customer tailored, elaborate
supply chain disruptions occurred are natural disasters, products, multiple nodes and links, uncertainty in fore-
operational accidents, terrorism, political instability, and casting, etc.
the complex relationships between the members of the Complexity experienced in a supply chain increases
supply chain system (both cooperation and competition). its vulnerability to disruptions [4]. Demand-side, supply-
According to the structure of the supply chain, disrup- side, and catastrophic events can be considered the
tion risks in supply chain can be divided into supply dis- drivers of supply chain vulnerability. The demand-side
ruptions, logistics disruptions, coordination disruptions, drivers include demand uncertainty, customer depen-
and demand disruptions. Supply disruptions refer to dence, and disruptions in physical distribution of prod-
supplier delays to provide material or inventory shortages, ucts to the end-users (customers). The supply-side
which lead to downstream companies production stag- drivers include supplier business risks, production capac-
nated or even paralyzed. Logistics disruptions refer to ity constraints on the supply market, quality problems,
something happened to the products in transit from the technological changes, and product design changes. Sup-
supplier to the customer, product damaged in transit, or ply chain risk may be the outcome of unexpected varia-
that suppliers do not delivered the products on time, tions, such as capacity constraints, machine breakdowns,
which leads to downstream companies appeared produc- uncertain yields, quality problems, a re, or even natural
tion interrupt. Demand disruptions are the temporary or disasters occurring in a supplier facility [1]. The
permanent loss of demand caused by the extension of the increases in interrm dependence, as well as longer and
activities or interruption or serious inventory of down- more complex supply chain setups with global opera-
stream enterprise, which affects the upstream enterprises. tions, have increased the vulnerability of the chains to
Coordination disruptions are the risks caused by poor unexpected events [11]. The degree of the vulnerability
coordination between the members of the supply chain. of a supply chain is determined to a large extent by the
Typically, the disruption risk is an unexpected sudden degree of complexity of the network [13]. Therefore, the
interruption in the supply chain [12]. Although the proba- complexity existing in supply chain structure, elaborate
bility of occurrence is relatively small, the inuence to supply chain management, outsourcing of business, and
supply chain is far-reaching [6]. Generally, the more com- the instability of the external environment are all depen-
plex the supply chain network is, the more links in the dent on information technology, which all make supply
supply chain, and therefore, greater disruption risks in the chains vulnerable to diverse risks.
supply chain. As the number of constraints (e.g.
bottlenecks) in the supply chain from supplier to end cus-
tomer increases, the difculty of disruption detection and 3. Modeling supply chain complex network
recovery increases. However, the probability of an event
3.1. Basic theory of complex network
occurring may be reduced by effective supply chain plan-
ning and collaboration, quick response for supply chain A complex network represents a wide range of real-
redesign, and information visibility effectiveness. world systems occurring in nature [17], such as techno-
logical networks, biological networks, social networks,
and the economy, and has been attracting increased inter-
2.2. Complexity and vulnerability in supply chain est in recent years. In this section, we developed a
networks weighted complex network model, and the features of
Recent growth in globalization has created more com- this weighted model will be discussed further.
plex supply chains with the greater risks. With competi- A complex network can be represented as a graph
tion, shifting from companies to supply chains, it has G = (V, E) with a set of vertexes (V) connected by a
become very important for the individual company to be set of edges (E). For a weighted network, suppose w is
a member of a competitive supply chain. It has therefore the correlation between two vertexes and wij represents
become essential for the individual company in the sup- the correlation between node i and node j. The weight
ply chain to nd out what consequences different supply of the edges represents the intensity of the connection
chain design and management alternatives have for the between the two vertexes, and higher wij demonstrates
competitiveness of the supply chain and of the company a more intensive connection. Suppose the distance
and to actively promote alternatives with high competi- between node i and j is dij = 1/wij, then a higher weight
tiveness. Disruptions can rapidly have severe negative of the edge joining node i and j indicates a shorter
Journal of Industrial and Production Engineering 223

distance between them. The strength of vertex i is the connecting with node i is a function of the
sum of the weights of the edges indexed on i: weights of Si, that is to say:
X
Si Wij Y Si
j2Ci P
j Sj
where i is the neighbor vertexes of node i. Point inten- P
n!i

sity indicates that the node has a point of strength proba- where si j2V i wij is the sum of all the edges
bility distribution P(s). Shortest paths are used to dene indexed on node i.
a measure for topological importance of a node or an If the node N represents a retailer and has the proba-
edge, namely the betweenness centrality. bility of 1 .
(4) Suppose is the attraction factor of a node,
3.2. Modeling the supply chain using a weighted reects the quality of products, exchange time,
complex network and service quality. At each time interval, fol-
lowing the joining of a new node N to the net-
In a supply chain network, nodes represent different sub-
work, every node i (including N) in the network
jects, which could be the manufacturers, suppliers, retail-
selects m other nodes. The probability that node
ers, and customers, while the edges represent the
i selects node j is
collaboration and competitive relationships among these Q s d
subjects. The weights of the edges could be the trading Pj s d. If node i selects j but not vice versa,
k
i!j
volume and the strength of a node indicates the impor- k6i

tance of a subject in the supply chain. For example, if a the connection between the two will not be established
manufacturer is the only supplier in the world, the corre- or the edge weight remains unchanged if there is already
sponding node representing this manufacturer will have a connection between them. Otherwise, if two nodes
very high strength. This often occurs with key suppliers select each other simultaneously, then the edge weight
who control a core technology. For example, the earth- increases by 1, that is to say:
quake in Japan has delayed the supply by many Japanese wij wij 1
companies, which in turn has greatly affected the auto-
motive industry worldwide. Even, Chinas local compa- Figure 1 is the initial supply chain network with the
nies and those of Europe or the United States were manufacturer and the core, and Figure 2 is the model of
affected in a certain extent. These indicate that the supply chain with the manufacturer as the core which has
Japanese automotive suppliers have an important strength 100 nodes, and Figure 3 is the model of supply chain with
in the supply chain and their disruption could cause the the manufacturer as the core which has 500 nodes whose
breakdown of the whole supply chain. weight distribution is shown in Figure 4. As shown by the
In a traditional complex network, every vertex can tted curve, the weight in a supply chain follows the
be connected by every other vertex and all the vertexes power law distribution. That is to say, a node tends to
have the same nature. In supply chain networks, vertexes interact with nodes with higher weights. With the expan-
are different from each other due to their represented sion of the network, these nodes will nally have more
subjects, including suppliers, manufacturers, and custom- connections than the other nodes and are the hubs. But
ers. The characteristics of these subjects therefore a weightier node would not passively interact with lighter
affected the connections that could occur in the network. nodes and the core enterprise would take all the factors
In a supply chain with complex networks, manufac- into consideration, such as the quality of the suppliers
turers are hubs and other companies join the network. merchandise, services and price, and so on.
The connections among the vertexes are generated based As shown in the gure, suppose that the probability
on their intentions, regardless of the physical distance. of a new node represents a supplier () is 0.50, the initial
The model is a dynamic network in which edge weights weight of the new node (w0) is 0.10, the initial attraction
change as the collaboration intensities change, which in
turn rene the edge weights and affect the overall topo-
logical structures of the network. A model is constructed
as follows:
(1) at t = 0, the network has m0 vertexes and e0
edges,
(2) at every time interval, a new node N joins the
network and connects with the node w in the fol-
lowing ways, where w m0 and depends on N.
(3) If the node N represents a supplier and has a
Figure 1. Initial supply chain with the manufacturer as the
probability , the probability of node N
core.
224 Y.-f. Ma et al.

4. Analysis of supply chain disruption risk based on


complex network
4.1. Centrality measurement of network topology
A few network measures have been proposed for
weighted networks, including three common measures of
node centrality: degree, closeness, and betweenness. The
degree of centrality measures the range size of a node
control, the higher the degree centrality of a node, the
more neighbor nodes associated with it in the network.
But only from the value of the node degree, we cannot
accurately reect the importance of the node. Sometimes,
Figure 2. Model of supply chain with the manufacturer as the although one node has higher value of degree, but the
core (100 nodes). nodes connected to it are not important nodes, this node
will not necessarily be important. In contrast, although
the degree value of a node is not higher, but the neigh-
bor nodes which are connecting to the node are impor-
tant nodes, the node in the network is also very
important. That is to say, the node is a bridge to the
whole network. As shown in Figure 5, the value of the
node V7 is only 2, but if the node is removed, the entire
network will be no longer connected, which means that
the network interrupt occurs. Therefore, the importance
of the node needs to be considered from the perspective
of the global information judgment. Betweenness central-
ity is a measure of a nodes centrality in a network equal
to the number of shortest paths from all vertices to all
Figure 3. Model of supply chain with the manufacturer as the others that pass through that node. If betweenness cen-
core (500 nodes). trality of a node is greater, it indicates that there are
more shortest path between any two nodes throughout
the network [17]. Thus, the node is more important in
the network. Betweenness centrality is a more useful
measure of the load placed on the given node in the
network as well as the nodes importance to the network
than just connectivity.

4.2. Key nodes in the complex network


Supply chains consist of many locations, such as suppli-
ers, manufacturers, and vendors, and its disruptions are
never purely local but cascade through the entire supply
chain system. Upstream disruptions will cause down-
stream out-of-stock. A fundamental prerequisite for
Figure 4. Intensity distribution of supply chain network model improved supply chain resilience is an understanding of
(S: strength; P(s): strengths probability distribution). the network that connects the business to its suppliers
and their suppliers and to its downstream customers. The
factor of retailer () is 0.10, and the demise probability ability of the network to resist risks is measured by the
of old links (p) is 0.01.
Supply chain network system constantly changes and
develops new nodes that join the network and some old V1 V4 V9
V12
nodes that exit the network, which makes the topological
structure evolves continued, that is to say, supply chain V3 V10
V2 V6 V7 V8
network is dynamic, growth, and merit. In the process of
generation, development and perish of supply chain V13
V5 V11
network, nodes and links failure will cause changes of
supply chain structure, and reduce the efciency of the
supply chain. Figure 5. Example of network centrality.
Journal of Industrial and Production Engineering 225

invulnerability and the invulnerability is related to slow- V1


ing performance of some edges or nodes in network after V4
attack. Complex network theory could help to determine
the vulnerability of the nodes, identify the risk-resisting
V2
ability of the entire supply chain network, and optimize V6
the supply chain network topology by improving the V7
ability to resist risks, which is realized mainly by pro-
V5
tecting important nodes and temporarily separating them.
Studies on risk-resisting ability generally include ran-
dom attacks and malicious destruction. In supply chain V3
networks, random attack can be considered to be, for V6
example, if the supplier quit due to a natural disasters
(or for other reasons). This situation often occurs ran-
Figure 7. Node failures.
domly and it can be seen as a random attack on the net-
work. Malicious destruction can occur if one of the main
more shortest path through the node, the more important
suppliers quits due to shortage of funds or because they
the node is.
are maximizing their own interests and joining another
If the manufacturers are taken as the core of the net-
supply chain network. If these important suppliers (key
work, then suppliers and customers are the network
nodes) quit from the network, it is bound to be a crush-
edge, and this topology of the supply chain is shown in
ing blow on the enterprises left in the supply chain.
Figure 8. Firstly, we measure the importance of the sup-
From a complex network perspective, the risk of sup-
ply chain node in its own area using node strength, that
ply chain disruptions refers to network non-connectivity,
is, measured from the local area, which showed the
which leads to the interruption of the supply chain, that
contact tightness with the surrounding nodes. Then, we
is, supply chain node enterprise exit for some reason or
measure the important nodes from the structural integrity
temporarily unable to supply goods to the downstream
of the supply chain network. Specic methods are as
nodes enterprise, or the losses caused by the interruption
follows:
which comes from logistics interrupt. Exit or delivery
interruption of node enterprises can be seen as nodes (1) Nodes in the network are independent. Take the
failure and logistics interruption can be seen as links fail- principles that if the larger weight of a node,
ure, which are shown in Figures 6 and 7. the closer relationship with the neighbor nodes.
In order to identify the vulnerabilities in a supply The sum of the edges weights is given by:
chain network and analyze the risk-resisting ability of P
si j2NI wij , and si 2 0; 1, that is to say the more
the supply chain network, we must rst nd important
weight the edge has, the closer the connection with the
nodes in the entire network and take relevant measures
neighbor nodes, and if the node was removed, then a
to protect the important node. In order to nd the key
heavier inuence would be placed on the ambient sup-
nodes in the supply chain network, it is necessary to
plier chain enterprise. If just the weight of the factors is
measure the importance of the nodes in the supply chain
considered, the larger the node weight, the more impor-
network. Both weight and position of a node are consid-
tant is the node.
ered. If the sum value of the weights is larger, the more
closely is the node with other nodes in contact, so that (2) In complex networks, the more shortest path
the node is important; the position of the node indicates through the node, the more important nodes
the importance of the node in the entire network. If the position is, then the node plays a key role in the
connectivity of the whole network. In supply
chain networks, some suppliers nodes strength
V1
value is not so large, but the relative importance
V4
of the location of the nodes in the network. As
the nodes are the bridges in the entire supply
V2 chain, its withdrawal from the supply chain or
V6 interruption will give the entire supply chain a
V7 heavy blow.
V5 As only consider the position of the nodes in the
entire supply chain, from the structural point of view of
V3 the network topology, the value of the weights can be
V6 ignored. In order to calculate simply, set the edge weight
to the same value. Putting all values of the weight which
is connected to node i to 1 and others are constant and
Figure 6. Link failures.
226 Y.-f. Ma et al.

V4

V26

43
V3 35 V23
30

66
V5 V22 V25 V28
58

43
V2

24
V21

75
36
V31

26
30 V6 30 V24
V1 V7 25 V27

54
47
V15 V17

28
22
52

36

50
V30
V9 48
64 V
V18 45 32
V8 38
45 28 V16 V29

36
V11 V10 30

4
65
15

V19 V33 V32 V37


57
V12 37 44

42
V13 45 V36

62
30 V35
V20 20
V14 V34
40
V38 V39

Figure 8. Topology structure of supply chain network.

then the average shortest path of the network will be chain network. Reducing the risk of interruption of sup-
changed. If node i is more important, there will be more ply chain network is to optimize the network design, to
shortest path via node i, and decrease the value of the improve the elasticity of the supply chain network, to
weight connecting to node i, the average shortest path ensure the rapid recovery of the supply capacity at a crit-
of the network will be smaller. The weights decreased ical node failure, and to take measures against the risk of
the network structure as shown in Figure, comparing interruption of the supply chain network for critical
with the change of mean network shortest path, then the nodes. So, when the supply chain encounters an interrup-
importance of nodes could be quantied. Normalized tion, it can quickly revert to the initial state before the
importance of node i can be represented as interruption occurs. The primary premise to enhance the
Ii 1  li =L, where L is the shortest paths in the initial exibility of the supply chain is to understand the struc-
state. Rank top 10 important nodes in the supply chain tural characteristics of the supply chain network, includ-
network; the result is shown in Table 1. This method is ing supply chain nodes and the lines between them,
similar to the method of betweenness centrality, but the especially the key lines, and this helps to determine the
computational complexity is much smaller than the weak links of the supply chain and the risk factors to the
betweenness centrality. implementation of monitoring and risk management mea-
As can be seen from the table, while the weights of sures, so that a network node failure can still maintain
node V15 are smaller, it plays a role as a bridge across the continued operation of the network. On one hand, it
the network; similarly as a key supplier, it also needs to is necessary to maintain close contact with key suppliers
take protection measures. to learn the suppliers supply capacity, to reduce the
probability of risk occurring by co-operation, and infor-
mation sharing, to strengthen the awareness of risk man-
4.3. Building the resilient supply chain agement measures, and to make sure that various
Disruptions typically create a bottleneck at one of these enterprises can more clearly understand the changes in
nodes that can, in effect, shutdown the entire supply the supply chain risk through information sharing and

Table 1. The sort of 10 important nodes in the supply chain network.

No. ID The node strength values sort ID Average shortest path change sort
1 V18 2.29 V18 0.2659
2 V8 1.76 V16 0.2266
3 V10 1.53 V8 0.2181
4 V33 1.52 V17 0.1716
5 V21 1.5 V33 0.1565
6 V27 1.47 V15 0.1557
7 V16 1.32 V7 0.1410
8 V29 1.27 V35 0.0951
9 V17 1.25 V10 0.0729
10 V7 1.15 V27 0.0709
Journal of Industrial and Production Engineering 227

exchange of the supply chain. On the other hand, to it is necessary to measure the importance of the nodes in
enhance the elasticity of supply chain networks in the the supply chain network, and then supply chain risk
risk of downtime occurs by selecting a key node in managers can easily discover which suppliers are
multi-source suppliers and safety stock strategy. In order strongly interconnected (critical) [18]. Disruption risks in
to improve the elasticity of the supply chain network, it supply chain could be managed by working closely with
should at least have a backup supplier to maintain a rea- key node enterprises and improvement of network resil-
sonable level of stock. ience and exibility can be achieved through the use of
To reduce the disruptions, the chains vulnerabilities a multi-skilled workforce, versatile equipment, and the
and bottlenecks, where there is a limit of capacity and development of closer relationships with suppliers and
where alternative options may not be available, e.g. ports customers to accommodate last-minute changes.
capable of taking large container vessels or central distri-
bution facilities which identify potential weaknesses and
Acknowledgments
key suppliers in their supply chain, should be addressed
The authors would like to thank Professor Chih-Hsing Chu for
[14], and the network that connects the business to its sup- offering precious inspiration, and wish to thank Mr Will Denny
pliers and their suppliers and to its downstream customers for his translation contributions to this paper.
should be mapped. Resilience can be achieved either
through redundancy to the key suppliers or keeping a high
level of collaborative working to the key suppliers includ- Notes on contributors
ing monitoring their nancial and operational health and Yong-fei Ma, a PhD student of School of Economics and
management, Hebei University of Technology, has been
even working with them to reduce their vulnerabilities.
working in the World Customs Organization Asia Pacic
From complex network perspective, supply chain Intelligence Liaison Ofce in Beijing since March 2010. He
disruption risk model design is based on two was actively involved in international cooperation, training and
considerations: In the case of supply chain disruption research while serving in China Customs service.
risk model, we optimaly design the supply chain model Li-wen Chen, Shao-dong Meng, and Cong-qin Yi are all profes-
based on the principle of exibility. In order to identify sors in Chinese universities, who are very specialized in supply
the key nodes and critical path in supply chain, the char- chain operational improvement and technology initiatives.
acteristics of supply chain network structure should be
understood rstly, then determine the vulnerabilities in
the supply chain, and take measures to enhance the anti- References
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