A Mathematical Optimization Approach to Supply Chain Disruptions Management Considering Disruptions to Suppliers and Distribution Centers

We develop an analytical framework of a multiproduct supply chain system composed of multiple suppliers, multiple distribution centers and multiple customers considering disruptions risk. Unlike traditional single sourcing strategy which is mostly discussed in supply chain literature, we apply multi-sourcing strategy in both procurement and distribution of commodities. The model thus developed determines the location of distribution centers from a set of potential location, shipment decisions from multiple suppliers to multiple distribution centers and shipment decisions from multiple distribution centers to multiple customers. Moreover, the model evaluates potential amount of products shortages in the event of disruptions. In our work, we consider disruptions at candidate locations for distribution centers and to the suppliers. The analytical framework is formulated as a mixed integer programming (MIP) model which minimizes the sum of investment cost, the transportation cost and the expected shortage cost. We consider several numerical instances to examine the benefit and practicability of the proposed model. Finally, we compare the results of the risk concern optimization framework to the basic optimization framework. From the results, it is expected that risk concern model would outperform the basic model in the case of disruptions.