Cost-effective strategy to mitigate transportation disruptions in supply chain

Abstract

Supply chain disruptions have gained significant attention by scholars. But, even though transportation plays a central role in supply chain, only few studies address transportation disruptions. This research demonstrates a real case of an order delivery process from a focal company (FC) to a single distributor, where transportation disruptions stochastically occurs. Considering the possibility of sales loss during the disruption duration, we proposed a redundant stock, flexible route, and combined flexibility-redundancy (ReFlex) as mitigation strategies and a base case as a risk acceptance strategy. The objective is to find out the best strategy that promotes cost-effectiveness against transportation disruptions. To fulfill this objective, we use simulation modeling and cost-effectiveness analysis (CEA) as our research method. We simulate the delivery process of 5 brands using each strategy to produce two different responses: loss of sales percentage and the incurred costs. Next, using these responses, we evaluate and compare the cost-effectiveness ratio of each strategy using CEA. We found that redundant stock gave the best effectiveness on all brands, ReFlex as the second best, while flexible route gave the least effectiveness. Finally, we recommend which strategy should be applied based on the decision maker willingness to pay.