An analysis of the ripple effect for disruptions occurring in circular flows of a supply chain network*

Abstract

This paper examines the ripple effect in supply chains due to circular flows embedded in supply chain design. Although supply chains are complex and nonlinear, circular flows exist in real-world supply chains but are often unknown or hidden to supply chain managers. These circular flows exist when a Tier 2 supplier is also a Tier 3 (or higher) supplier in the supply chain network. Additionally, a circular network can occur when a supplier is also a customer in the same network. In the presence of these types of supply chain network structures, supply chains may experience a ripple effect (or disruption propagation) in which disruptions impact supply chain performance. Using a real-world supply chain structure, we examine the effect of circular flows on the ripple effect and identify how this influences the supply chain’s resilience to disruptions. We offer managers and researchers insights that improve the understanding of how circular flows exacerbate the ripple effect.