Assessing and Mitigating Risk in a Design for Supply Chain Problem

Industry leaders in todays global market strive for continuous improvement in order to remain competitive. One method used by firms for cutting costs and improving efficiency is Design for Supply Chain (DFSC). The objective of this methodology is to design the supply chain in parallel to designing or redesigning a new product. Risk is an inherent element of this DFSC process. Although supply chain risk models and new product development risk models are available, there are few models that consider the combined effect of risk to product development and the supply chain. A gap in the body of knowledge could be filled by a DFSC and risk model that looks at design, supply chain and risk concurrently. This research develops such a model and tests it on two data sets. The most critical risks to incorporate in the model were found through a review of the literature and a survey of industry experts. The model consists of two components. The first component is a Mixed Integer Programming (MIP) model which makes the DFSC decisions while simultaneously considering time-to-market risk, supplier reliability risk and strategic exposure risk. The results from the MIP are then used in the second model component which is a discrete event simulation. The simulation tests the robustness of the MIP solution for supplier capacity risk and demand risk. When a decision maker is potentially facing either of these risks the simulation shows whether it is best to use an alternative solution or proceed with the MIP solution. The model provides analytical results to be used by decision makers, but also allows decision makers to use their own judgment to select the best option for overall profitability. It is shown that the DFSC model with risk is a powerful decision making tool.