Consumer Surplus based Method for Quantifying and Improving the Material Flow Supply Chain Network Robustness

Abstract

Recent advances in network science has encouraged researchers to adopt a topological view when characterising the robustness of supply chain networks (SCNs). However, topology based characterisations, without considering the heterogeneity among the supply chains which form the SCN, can only provide a partial understanding of robustness. Hitherto, focus of robustness studies have been on cyclic SCNs, with unweighted and undirected links representing general inter-firm interactions. Here, we consider the specific case of a material flow SCN with multi-sourcing, which is characterised by a tiered structure with directed and weighted links. The proposed method uses the multinomial logit model to estimate the utility levels of supply chains within the SCN, as perceived by a focal firm which is indicative of the SCN consumers. The robustness of the SCN is characterised by considering the degree to which supply chains overlap with each other as a cost in the logit formulation. Finally, using a randomisation scheme to generate ensembles of SCN configurations which preserve the number of connections at each firm, the configuration which maximises the consumer surplus for the focal firm is identified. The proposed method is implemented on a real world SCN to identify the optimal configuration in terms of robustness.