Supply Chain Risk Mitigations with Expedited Shipping

Abstract

We study supply chain risk mitigations by incorporating expedited shipping. The firm we consider can source from two suppliers one is unreliable while the other is perfectly reliable but more expensive. It intends to mitigate the potential risks caused by random disruptions at the unreliable supplier by adapting its risk mitigation policy based on the supplier's disruption factors, such as the expected disruption length and expected availability, together with other information on costs and transportation time. This work generalizes the research of Tomlin [32] who investigated a similar problem without expedited shipping. We show how the expedited shipping option influences the optimal mitigation strategies, and conclude that a firm's optimal risk-mitigation strategy is sensitive to its capability of expediting shipments. We also identify the cost-saving feature of expedited shipping for supply chain risk mitigations, and demonstrate that it is a good alternative when the cost of maintaining flexible capacity at the reliable supplier is high. These characterize the importance of considering expedited shipping in supply chain risk mitigation, and offer insights for developing new transportation modes with expedited shipping in practice. (C) 2014 Elsevier Ltd. All rights reserved.