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International Series in
Operations Research & Management Science

Tadeusz Sawik

Supply Chain
Disruption
Management
Using Stochastic Mixed Integer
Programming
Second Edition
International Series in Operations Research
& Management Science

Volume 291

Editors
Camille C. Price
Department of Computer Science, Stephen F. Austin State University,
Nacogdoches, TX, USA

Associate Editor
Joe Zhu
Foisie Business School, Worcester Polytechnic Institute, Worcester, MA, USA

Founding Editor
Frederick S. Hillier
Stanford University, Stanford, CA, USA
More information about this series at http://www.springer.com/series/6161
Tadeusz Sawik

Supply Chain Disruption

Management
Using Stochastic Mixed Integer Programming

Second Edition
Tadeusz Sawik
Department of Operations Research
AGH University of Science and Technology
Kraków, Poland
Department of Engineering
Reykjavik University
Reykjavik, Iceland

ISSN 0884-8289 ISSN 2214-7934 (electronic)

International Series in Operations Research & Management Science
ISBN 978-3-030-44813-4 ISBN 978-3-030-44814-1 (eBook)
https://doi.org/10.1007/978-3-030-44814-1

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland
AG 2018, 2020
This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether
the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse
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To Bartek, Siasia, Kalinka, Aleksander,
Diana, Kajetan-Ragnar, and Rokimi
with love

and to the Memory of my Parents

Preface

Scope

This book deals with stochastic combinatorial optimization problems in supply

chain disruption management, with a particular focus on the management of dis-
rupted flows in customer-driven supply chains. The problems are modeled using a
scenario-based stochastic mixed integer programming to address risk-neutral, risk-
averse, and mean-risk decision-making in the presence of supply chain disruption
risks. One of the main objectives of this book is to present a computationally ef-
ficient portfolio approach to integrated decision-making in global supply chains
under disruption risks. In the context of supply chain disruptions, the portfolio is
defined as the allocation of demand for different part types among suppliers and
the allocation of demand for different product types among production facilities
(e.g., assembly plants) of the final manufacturer. The allocation of demand for parts
among suppliers is defined as a supply portfolio, whereas the allocation of demand
for products among production facilities of the final manufacturer is defined as a de-
mand or capacity portfolio. Unlike most of the reported research on the supply chain
risk management which mainly focuses on the risk mitigation decisions taken prior
to a disruption, the proposed portfolio approach combines decisions made before,
during, and after the disruption. When a disruption occurs, the primary portfolios
determined prior to a disruption are replaced by recovery portfolios. The selection
of portfolios will be combined with the management of disrupted material flows,
i.e., supply, production, and distribution scheduling under disruption risks. The book
demonstrates that the developed portfolio approach leads to simple decision-making
models and, owing to embedded network flow structures, to computationally effi-
cient stochastic mixed integer programs with a strong LP relaxation.
Moreover,
• integrated vs. hierarchical decision-making is compared depending on the avail-
able information on disruption events;
vii
viii Preface

• a multi-objective decision-making is analyzed to trade off between: cost vs. ser-

vice level objective functions, fairness vs. non-equitability of objective functions,
average vs. worst-case performance of a supply chain, etc.;
• a multi-period decision-making is modeled to capture dynamics of disruption
and recovery processes, i.e., static vs. dynamic portfolios, scheduling of supply,
production, and distribution operations to control disrupted flows under time-
varying conditions such as demands, capacities, etc.;
• a multi-level disruption scenarios are modeled to capture partially disrupted
flows, partially fulfilled orders, partially recovered facilities, and partially avail-
able capacity;
• multi-tier vs. two-tier resilient supply portfolios are modeled to compare re-
silience of multi-tier supply chain networks vs. two-tier supply chains.
The book also addresses the issue of fundamental understanding of average and
worst-case performance of a global supply chain in the presence of flow disruption
risks, understanding of the recovery mechanisms as well as understanding of the
supply chain resilience.
A straightforward computational approach used in this book is to solve the deter-
ministic equivalent mixed integer program of a two-stage stochastic mixed integer
program with recourse, which allows for a direct application of commercially avail-
able software for mixed integer programming. In the computational experiments
reported throughout the book, an advanced algebraic modeling language AMPL
(see, Fourer et al. 2003) and the CPLEX, Gurobi, and XPRESS solvers have been
applied.

Content

The book is divided into an introductory Chap. 1, where an overview of supply chain
disruption modeling and management is provided with a particular emphasis on an
innovative multi-portfolio approach, and the six main parts. Part I addresses se-
lection of a supply portfolio, Part II, integrated selection of supply portfolio and
scheduling, Part III, integrated, equitably efficient selection of supply portfolio and
scheduling, Part IV integrated selection of primary and recovery supply (and de-
mand) portfolios and scheduling, Part V, selection of supply portfolio in multi-tier
supply chain networks, and finally Part VI addresses disruption management of in-
formation flows in supply chains.
Part I (Chaps. 2–4) introduces the portfolio approach for supplier selection and
order quantity allocation in the presence of supply chain disruption risks, i.e., for
determining a supply portfolio. The proposed portfolio approach allows the two
popular in financial engineering percentile measures of risk, Value-at-Risk (VaR)
and Conditional Value-at-Risk (CVaR) to be applied for managing the risk of supply
disruptions. For a finite number of scenarios, CVaR allows the evaluation of worst-
case costs (or worst-case service level) and shaping of the resulting cost (service
Preface ix

level) distribution through optimal supplier selection and order quantity allocation
decisions, i.e., the selection of optimal supply portfolio.
Part I is comprised of these chapters:
• Chapter 2, Selection of Static Supply Portfolio. This chapter deals with the se-
lection of a static supply portfolio under disruption risks, i.e., for determining
a single-period allocation of demand for parts among selected suppliers to min-
imize expected or expected worst-case cost or maximize expected or expected
worst-case service level.
• Chapter 3, Selection of Dynamic Supply Portfolio. In this chapter, the static port-
folio approach and the stochastic mixed integer programming formulations pre-
sented in Chap. 2 are enhanced for a multi-period supplier selection and order
quantity allocation in the presence of both the low probability and high impact
supply chain disruption risks and the high probability and low impact supply
chain delay risks. The suppliers are subject to local delivery delay risks, and
both local and regional delivery disruption risks. In the delivery scenario analy-
sis, both types of the supply chain risks are simultaneously considered.
• Chapter 4, Selection of Resilient Supply Portfolio. In this chapter, the portfolio
approach and SMIP models presented in Chap. 2 are enhanced for the combined
selection and protection of part suppliers and order quantity allocation in a sup-
ply chain with disruption risks. The protection decisions include the selection of
suppliers to be protected against disruptions and the allocation of risk mitigation
inventory of parts to be pre-positioned at the protected suppliers so as to maintain
uninterrupted supplies in case of natural or man-made disruptive events.
Part II of the book concerns with integrated selection of supply portfolio and
scheduling. The medium- to short-term decisions of the supplier selection and order
quantity allocation, driven by the time-varying customer demand, are made along
with scheduling of customer orders execution and distribution. The advantage of
such a joint decision-making is especially evident in the presence of supply chain
disruption risks.
Part II has two chapters:
• Chapter 5, Integrated Selection of Supply Portfolio and Scheduling of Produc-
tion. This chapter proposes a SMIP approach to integrated supplier selection and
customer order scheduling in the presence of supply chain disruption risks for
a single, dual, or multiple sourcing strategy. The suppliers are assumed to be
located in two or more disjoint geographic regions: in the producer’s region (do-
mestic suppliers) and outside the producer’s region (foreign suppliers). The sup-
plies are subject to independent random local disruptions that are uniquely as-
sociated with a particular supplier and to random regional disruptions that may
result in disruption of all suppliers in the same geographic region simultaneously.
• Chapter 6, Integrated Selection of Supply Portfolio and Scheduling of Production
and Distribution. The purpose of this chapter is to study the integrated decision-
making to simultaneously select suppliers of parts, allocate order quantity, and
schedule production and delivery of finished products to customers in a supply
x Preface

chain under disruption risks. In addition to supplier selection, order quantity al-
location and scheduling of customer orders, distribution of finished products to
customers is simultaneously considered with different shipping methods to op-
timize the trade-off between cost and service level. The three different shipping
methods will be modeled and compared for the distribution of products: batch
shipping with a single shipment of different customer orders, batch shipping with
multiple shipments of different customer orders, and individual shipping of each
customer order immediately after its completion.
Part III addresses equitably efficient selection of supply portfolio and schedul-
ing. A fair optimization of an average performance of a supply chain with respect to
equally important conflicting objective functions and a fair mean-risk optimization
of average and worst-case performance are considered in the presence of supply
chain disruption risks. The conflicting and equally important objective functions are
expected values of cost and customer service level and the corresponding expected
and expected worst-case values, respectively. The fairness and the mean-risk fair-
ness reflect the decision-makers common requirement to maintain an equally good
performance of a supply chain with respect to equally important objectives and un-
der varying operating conditions.
Part III has two chapters:
• Chapter 7, A Fair Decision-Making under Disruption Risks. In this chapter, the
two risk-neutral conflicting criteria: expected cost and expected service level are
fairly optimized to achieve an equitably efficient supply portfolio and produc-
tion schedule in the presence of supply chain disruption risks. In order to obtain
an equitably efficient solution, the ordered weighted averaging (OWA) aggrega-
tion of the two conflicting objective functions is applied. The equitably efficient
solutions obtained for the ordered weighted averaging aggregation of the two
conflicting objective functions will be compared with nondominated solutions
obtained using the weighted-sum aggregation approach.
• Chapter 8, A Robust Decision-Making under Disruption Risks. In this chapter,
we look for an equitably efficient solution with respect to both average-case and
worst-case performance measures of a supply chain. Such an equitably efficient
average and worst-case solution, or equivalently equitably efficient risk-neutral
and risk-averse solution will be called a fair mean-risk solution. The solution
will equitably focus on the two objective functions: the expected value (average-
case performance measure) and the expected worst-case value (worst-case per-
formance measure), i.e., Conditional Value-at-Risk of the selected optimality cri-
terion, cost or service level. The fair mean-risk decision-making aims at equaliz-
ing the distance to optimality both under business-as-usual and under worst-case
conditions, which reflects a common requirement to maintain an equally good
performance of a supply chain under varying operating conditions. Therefore,
the mean-risk fairness, i.e., the equitably efficient performance of a supply chain
in the average-case as well as in the worst-case, in this chapter, will be called
robustness.
Preface xi

Part IV focuses on selection of primary and recovery portfolios and schedul-

ing. The selection of primary suppliers and order quantity allocation to mitigate
the impact of disruption risks is combined with the selection of recovery suppliers
and assembly plants to optimize the recovery processes. The two decision-making
approaches will be considered and compared: an integrated approach with some in-
formation about the future potential disruption scenarios available ahead of time,
and a hierarchical approach with no such information available. In the integrated
approach, which may account for all potential disruption scenarios, the primary
portfolios that will hedge against all potential disruptive events will be determined
along with the recovery portfolios for each scenario. In the hierarchical approach,
first, the primary portfolios are determined, and then, when the primary portfolios
are impacted by a disruptive event, the recovery portfolios are selected to optimize
the process of recovery from the disruption. Both the integrated and the hierarchical
decision-making account for time and cost of mitigation and recovery processes and
aim at optimizing cost and service level as the two equally important, conflicting ob-
jective functions. Owing to the embedded network flow structures, computationally
efficient stochastic mixed integer programs with a very strong LP relaxation are de-
veloped.
Part IV has four chapters:
• Chapter 9, Selection of Primary and Recovery Supply Portfolios and Scheduling.
In this chapter, the portfolio approach presented in the previous chapters for the
selection of primary suppliers and order quantity allocation to mitigate the impact
of disruption risks is enhanced also for the recovery process, i.e., for the selection
of both primary and recovery suppliers and order quantity allocation to mitigate
the impact of disruption risks and optimize the recovery process. Unlike most
of the reported research on the supply chain risk management which focuses on
the risk mitigation decisions taken prior to a disruption, this chapter combines
decisions made before, during, and after the disruption.
• Chapter 10, Selection of Primary and Recovery Supply and Demand Portfolios
and Scheduling. In this chapter, the portfolio approach proposed in Chapter 9 for
the selection of primary and recovery suppliers and order quantity allocation to
mitigate the impact of disruption risks is enhanced also for the recovery process
of the final manufacturer’s assembly plants for finished products. Unlike most of
the reported research on supply chain disruption management, a disruptive event
is assumed to impact both a primary supplier of parts and the final manufacturer’s
primary assembly plant. Then the manufacturer may choose alternate (recovery)
suppliers and move production to alternate (recovery) plants along with trans-
shipment of parts from the impacted primary plant to the recovery plants. The
resulting allocation of unfulfilled demand for parts among recovery suppliers and
unfulfilled demand for products among recovery assembly plants determines re-
covery supply portfolio and recovery demand portfolio, respectively. In addition,
the allocation of inventory of parts at impacted primary plants among recovery
plants defines a recovery transshipment portfolio.
• Chapter 11, Selection of Primary and Recovery Supply and Demand Portfolios
and Scheduling: A Two-Period Approach. This chapter presents a novel two-
xii Preface

period modeling approach for supply chain disruption mitigation and recovery,
where the planning horizon is divided into two aggregate periods: pre-disruption
Period 1 and post-disruption Period 2. The corresponding mitigation and recov-
ery decisions are: (1) primary supply and demand portfolios and production prior
to disruption, and (2) recovery supply, transshipment, and demand portfolios and
production after disruption. The two variants of the two-period modeling ap-
proach are proposed and compared: with best-case and with worst-case capacity
constraints, where the available recovery production capacity may be overesti-
mated or underestimated, respectively.
• Chapter 12, Selection of Supply and Demand Portfolios and Production and In-
ventory Scheduling. In this chapter, the risk-averse integrated selection of supply
and demand portfolios and production and inventory scheduling are considered
for the period-dependent demand. In order to allow for a delayed satisfaction
of demand using product inventory, production is scheduled along with the in-
ventory. To this end, the additional cost of the inventory holding and penalty
for delayed demand are introduced. The impact of different demand patterns on
supply chain performance is investigated.
Part V addresses selection of resilient supply portfolio in a multi-tier supply chain
network, geographically dispersed over multiple regions, where in each region sup-
pliers of the same and/or of different tiers are located. In addition to multi-sourcing
and recovery and transshipment supplies, to improve the network resilience, pre-
positioning of risk mitigation inventory at primary suppliers of parts of different
tiers and at primary assembly plant is considered. Static (single-period) and dynamic
(two-period) decision-making models are developed and some proven properties of
optimal solutions derived from the proposed models provide additional managerial
insights. Owing to the embedded network flow structures, computationally efficient
stochastic mixed integer programs with a very strong LP relaxation are developed.
Part V has two chapters:
• Chapter 13, Selection of Resilient Multi-Tier Supply Portfolio. This chapter de-
velops a multi-portfolio approach to disruption mitigation and recovery in a ge-
ographically dispersed multi-tier supply chain network. A static (single-period)
model is developed for resilient, risk-neutral, and risk-averse decision-making,
where the supply chain resilience is improved by pre-positioning of risk miti-
gation inventory at different tiers of the network. The proposed approach is a
non-trivial enhancement of a two-tier supply portfolio approach introduced in
Part I and extended later in Part IV for a combined risk mitigation and recovery
in the supply chains.
• Chapter 14, Selection of Resilient Multi-Tier Supply Portfolio: A Two-Period
Approach. The two-period approach developed in Chap. 11 for the selection of
primary and recovery portfolios in a two-tier supply chain, in this chapter, is en-
hanced for a multi-tier supply chain network. The static (single-period) decision-
making model proposed in Chap. 13 for the selection of resilient multi-tier sup-
ply portfolio is extended for a dynamic (two-period) setting, where the planning
Preface xiii

horizon is divided into two aggregate periods: pre-disruption Period 1 and post-
disruption Period 2.
Part VI deals with disruption management of information flows in supply chains
caused by cybersecurity incidents. The supply portfolio approach applied to miti-
gate the impact of supply disruptions has been modified to select countermeasure
portfolio to mitigate the impact of information flow disruptions.
Part VI has one chapter:
• Chapter 15, Selection of Cybersecurity Safeguards Portfolio. This chapter deals
with the selection of countermeasures portfolio in cybersecurity planning to pre-
vent or mitigate the impact of information flow disruptions in a supply chain. A
scenario-based bi-objective SMIP approach with CVaR as a risk measure is pro-
posed for the decision-making. Given a set of potential threats and a set of avail-
able countermeasures, the decision-maker needs to decide which countermeasure
to implement under limited budget to minimize potential losses from successful
cyber-attacks. The selection of countermeasures is based on their effectiveness
of blocking different threats, implementation costs, and probability of potential
attack scenarios. The bi-objective trade-off model provides the decision-maker
with a simple tool for balancing expected and worst-case losses and for shaping
of the resulting cost distribution through the selection of optimal subset of coun-
termeasures for implementation, i.e., the selection of optimal countermeasure
portfolio.
The Parts I–VI and the chapters within each part are arranged in the order recom-
mended for reading, while Part VI with Chap. 15 can be read independently of the
other chapters. Each chapter ends with a table summarizing major managerial in-
sights and the end-of-chapter problems to help the reader a self-check of material
comprehension and to encourage for a further self-study.
The book can be considered a companion as well as a follower of my previ-
ous book on scheduling in supply chains using mixed integer programming (Sawik
2011a), where deterministic MIP approaches were developed for integrated schedul-
ing in customer-driven supply chains, in particular, in the electronics supply chains.
The reader interested in knowing more about stochastic programming is referred
to the monographs by Birge and Louveaux (2011) or Kall and Mayer (2011). For
a general introduction to mixed integer programming models and techniques, the
reader is referred to the application-oriented book by Chen et al. (2010) or to the
seminal work in the field by Nemhauser and Wolsey (1999). The fundamentals
of supply chain theory are well presented by Snyder and Shen (2011), and for an
engineering-oriented general reference work on supply chains, the reader is referred
to the book by Dolgui and Proth (2010). Finally, some books cover supply chain risk
management in general, e.g., Kouvelis et al. (2011), Sodhi and Tang (2012), Kho-
jasteh (2018), Ivanov (2018) and Ivanov et al. (2019), and some of these emphasize
supply chain disruption management, e.g., Gurnani et al. (2012).
xiv Preface

About the Second Edition

Supply chain risk management has been rapidly evolving in recent years, however,
its core remains essentially unchanged. All stochastic mixed integer programming
models from the first edition and the results of computational study are still rele-
vant. The proposed multi-portfolio approach can be particularly useful for material
flow coordination in contemporary supply chain networks, which are cyber-physical
systems, where integrated decision-making and control over the entire network is of
utmost importance.
Despite the substantial revisions made throughout the text, much of the brand
new material is concentrated in Part IV and Part V, where the four new Chaps. 11–
14 are added, using the results of my recent research. In particular, Part V deals with
supplier selection under disruption risks in a multi-tier supply chain network, which
is nearly unreported in the literature. Moreover, the original Chaps. 1, 3, and 10
are expanded and significantly updated. In the second edition, new propositions
are formulated to provide better insights into the properties of developed stochastic
mixed integer programs and their optimal solutions. Finally, each chapter ends with
a table providing the reader with major managerial insights.

Acknowledgment

I wish to express my thanks to Series Editor, Camille Price, who invited me to

prepare this extended second edition of my monograph for International Series in
Operations Research and Management Science.

Audience

The book is addressed to practitioners and researchers on supply chain risk man-
agement and disruption management, and to students in management, industrial
engineering, operations research, applied mathematics, computer science, and the
like at masters and PhD levels. It is not necessary to have a detailed knowledge of
stochastic programming and integer programming in order to go through this book.
The knowledge required corresponds to the level of an introductory course in op-
erations research and supply chain management for engineering, management, and
economics students.

Kraków, Poland Tadeusz Sawik

January 2020
Acknowledgements to the First Edition

The book is based on the results of my research on supply chain scheduling and dis-
ruption management by stochastic mixed integer programming over the last decade.
I wish to acknowledge many anonymous reviewers for their comments and sugges-
tions on my submissions to different international journals, in particular, Omega:
The International Journal of Management Science, International Journal of Pro-
duction Research, Computers and Operations Research and Decision Support Sys-
tems.
The material presented in this book is in part based on the results of different re-
search projects on supply chain optimization and risk management, funded by Pol-
ish Ministry of Science and Higher Education and by NCN. This project has been
partially supported by NCN research grant #DEC-2013/11/B/ST8/04458. Thanks
are also due to the AGH University of Science and Technology for its support of
research (grants #11.11.200.273 and #11.11.200.324) on supply chain risk manage-
ment over the last 5 years.
Finally, I wish to express my thanks to Springer Editor, Camille Price, who in-
vited me to prepare this monograph for International Series in Operations Research
and Management Science.

xv
Contents

1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Overview of Supply Chain Disruption Management . . . . . . . . . . . . . 1
1.2 Value-at-Risk Versus Conditional Value-at-Risk . . . . . . . . . . . . . . . . 4
1.3 Local, Regional, and Global Disruptions . . . . . . . . . . . . . . . . . . . . . . 7
1.4 Two-Level Versus Multi-Level Disruptions . . . . . . . . . . . . . . . . . . . . 9
1.5 Risk-Neutral, Risk-Averse, and Mean-Risk Decision-Making . . . . . 10
1.5.1 Risk-Neutral Decision-Making . . . . . . . . . . . . . . . . . . . . . . . . 11
1.5.2 Risk-Averse Decision-Making . . . . . . . . . . . . . . . . . . . . . . . . 12
1.5.3 Mean-Risk Decision-Making . . . . . . . . . . . . . . . . . . . . . . . . . 12
1.6 A Multi-Portfolio Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Part I Selection of Supply Portfolio

2 Selection of Static Supply Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.2 Problem Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.3 Models for Risk-Neutral Decision-Making . . . . . . . . . . . . . . . . . . . . 22
2.4 Models for Risk-Averse Decision-Making . . . . . . . . . . . . . . . . . . . . . 27
2.5 Models for Mean-Risk Decision-Making . . . . . . . . . . . . . . . . . . . . . . 28
2.6 Computational Examples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2.6.1 Single-Region Sourcing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
2.6.2 Multi-Region Sourcing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
2.7 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

3 Selection of Dynamic Supply Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
3.2 Problem Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

xvii
xviii Contents

3.3 Models for Risk-Neutral Decision-Making . . . . . . . . . . . . . . . . . . . . 51

3.3.1 Dynamic Supply Portfolio for All-or-Nothing Delivery
Scenarios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
3.4 Models for Risk-Averse Decision-Making . . . . . . . . . . . . . . . . . . . . . 56
3.5 Models for Mean-Risk Decision-Making . . . . . . . . . . . . . . . . . . . . . . 57
3.6 Computational Examples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
3.6.1 Worst-Case Scenarios with Longest Delays
and Disruptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
3.7 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

4 Selection of Resilient Supply Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
4.2 Problem Description: Single-Level Protection . . . . . . . . . . . . . . . . . . 78
4.3 Resilient Supply Portfolio with Single-Level Protection . . . . . . . . . 81
4.3.1 Risk-Neutral Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
4.3.2 Risk-Averse Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
4.3.3 Mean-Risk Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
4.4 Protection Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
4.5 Resilient Supply Portfolio with Multi-Level Protection . . . . . . . . . . 88
4.6 Computational Examples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
4.6.1 Single-Level Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
4.6.2 Multi-Level Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
4.7 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107

Part II Integrated Selection of Supply Portfolio and Scheduling

5 Integrated Selection of Supply Portfolio and Scheduling

of Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
5.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
5.2 Problem Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
5.3 Models for Risk-Neutral Decision-Making . . . . . . . . . . . . . . . . . . . . 116
5.3.1 Minimization of Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
5.3.2 Maximization of Customer Service Level . . . . . . . . . . . . . . . 121
5.4 Models for Risk-Averse Decision-Making . . . . . . . . . . . . . . . . . . . . . 122
5.4.1 Minimization of Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
5.4.2 Maximization of Customer Service Level . . . . . . . . . . . . . . . 124
5.5 Model for Mixed Mean-Risk Decision-Making . . . . . . . . . . . . . . . . . 127
5.6 Computational Examples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
5.6.1 Single Versus Dual Sourcing . . . . . . . . . . . . . . . . . . . . . . . . . . 128
5.6.2 Single Versus Multiple Sourcing . . . . . . . . . . . . . . . . . . . . . . 138
5.6.3 Order Versus Demand Fulfillment Rate . . . . . . . . . . . . . . . . . 146
5.6.4 Conditional Service-at-Risk Versus Expected Cost . . . . . . . 148
Contents xix

5.7 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151

Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154

6 Integrated Selection of Supply Portfolio and Scheduling

of Production and Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155
6.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155
6.2 Problem Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156
6.3 Models for Risk-Neutral Decision-Making . . . . . . . . . . . . . . . . . . . . 159
6.3.1 Scheduling with Single Batch Shipping . . . . . . . . . . . . . . . . . 160
6.3.2 Scheduling with Individual and Immediate Shipping . . . . . . 164
6.3.3 Scheduling with Multiple Batch Shipping and Limited
Transportation Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165
6.4 Models for Risk-Averse Decision-Making . . . . . . . . . . . . . . . . . . . . . 166
6.5 Expected Value Problem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169
6.6 Computational Examples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171
6.6.1 Risk-Neutral Decision-Making . . . . . . . . . . . . . . . . . . . . . . . . 173
6.6.2 Risk-Averse Decision-Making . . . . . . . . . . . . . . . . . . . . . . . . 182
6.6.3 Expected Value—Based Decision-Making . . . . . . . . . . . . . . 184
6.7 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187
Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189

Part III Equitably Efficient Selection of Supply Portfolio and Scheduling

7 A Fair Decision-Making under Disruption Risks . . . . . . . . . . . . . . . . . . 193

7.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193
7.2 The Lexicographic Minimax Optimization and Equitable
Aggregation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194
7.3 Problem Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197
7.4 Problem Formulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199
7.4.1 Minimum and Maximum Values of the Objective
Functions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202
7.4.2 Model Limitations and Possible Enhancements . . . . . . . . . . 203
7.5 Computational Examples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204
7.5.1 Weighted-Sum Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208
7.6 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212
Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214

8 A Robust Decision-Making under Disruption Risks . . . . . . . . . . . . . . . 215

8.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215
8.2 Problem Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216
8.3 Problem Formulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218
8.3.1 Equitable Minimization of Average and Worst-Case
Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219
8.3.2 Equitable Maximization of Average and Worst-Case
Service Level . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221
xx Contents

8.3.3
Minimum and Maximum Values of the Objective
Functions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222
8.4 Computational Examples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226
8.5 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239
Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240

Part IV Selection of Primary and Recovery Portfolios and Scheduling

9 Selection of Primary and Recovery Supply Portfolios

and Scheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243
9.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243
9.2 Problem Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244
9.3 Models for Risk-Neutral Decision-Making . . . . . . . . . . . . . . . . . . . . 247
9.3.1 Integrated Selection of Primary and Recovery Supply
Portfolios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247
9.3.2 Multiple Part Types and Product Types . . . . . . . . . . . . . . . . . 253
9.3.3 Hierarchical Selection of Primary and Recovery Supply
Portfolios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 254
9.4 Models for Risk-Averse Decision-Making . . . . . . . . . . . . . . . . . . . . . 257
9.5 Computational Examples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259
9.5.1 Risk-neutral Decision-Making . . . . . . . . . . . . . . . . . . . . . . . . 260
9.5.2 Risk-averse Decision-Making . . . . . . . . . . . . . . . . . . . . . . . . . 271
9.6 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273
Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276

10 Selection of Primary and Recovery Supply and Demand Portfolios

and Scheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277
10.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277
10.2 Problem Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 278
10.3 Models for Risk-Neutral Decision-Making . . . . . . . . . . . . . . . . . . . . 282
10.3.1 Integrated Selection of Primary and Recovery Supply and
Demand Portfolios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282
10.3.2 Multiple Part Types and Product Types . . . . . . . . . . . . . . . . . 289
10.3.3 Hierarchical Selection of Primary and Recovery Supply
and Demand Portfolios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297
10.4 Models for Risk-Averse Decision-Making . . . . . . . . . . . . . . . . . . . . . 302
10.4.1 Integrated Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 302
10.4.2 Hierarchical Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 304
10.5 Computational Examples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305
10.5.1 Risk-neutral Decision-Making . . . . . . . . . . . . . . . . . . . . . . . . 306
10.5.2 Risk-averse Decision-Making . . . . . . . . . . . . . . . . . . . . . . . . . 315
10.6 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 318
Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320
Contents xxi

11 Selection of Primary and Recovery Supply and Demand Portfolios

and Scheduling: A Two-Period Approach . . . . . . . . . . . . . . . . . . . . . . . . 321
11.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321
11.2 Problem Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322
11.3 A Two-Period Model for Risk-Neutral Decision-Making . . . . . . . . . 324
11.3.1 Multi-Period Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330
11.4 Computational Examples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 332
11.5 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 337
Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339

12 Selection of Supply and Demand Portfolios and Production

and Inventory Scheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 341
12.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 341
12.2 Problem Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342
12.3 Models for Risk-Averse Decision-Making . . . . . . . . . . . . . . . . . . . . . 345
12.4 Computational Examples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352
12.5 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 363
Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 364

Part V Selection of Supply Portfolio in Multi-Tier

Supply Chain Networks

13 Selection of Resilient Multi-Tier Supply Portfolio . . . . . . . . . . . . . . . . . 367

13.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 367
13.2 Problem Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 368
13.3 Models for Risk-Neutral Decision-Making . . . . . . . . . . . . . . . . . . . . 372
13.4 Models for Risk-Averse Decision-Making . . . . . . . . . . . . . . . . . . . . . 381
13.5 The Impact of Unit Penalty for Unfulfilled Demand . . . . . . . . . . . . . 384
13.6 Computational Examples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 387
13.6.1 Risk-Neutral Decision-Making . . . . . . . . . . . . . . . . . . . . . . . . 389
13.6.2 Risk-Averse Decision-Making . . . . . . . . . . . . . . . . . . . . . . . . 392
13.7 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 398
Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400

14 Selection of Resilient Multi-Tier Supply Portfolio: A Two-Period

Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 401
14.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 401
14.2 Problem Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 402
14.3 Models for Risk-Neutral Decision-Making . . . . . . . . . . . . . . . . . . . . 405
14.4 Computational Examples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 416
14.5 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 422
Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 423
xxii Contents

Part VI Information Flow Disruption Management

15 Selection of Cybersecurity Safequards Portfolio . . . . . . . . . . . . . . . . . . 427

15.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 427
15.2 Problem Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 429
15.3 Models for Risk-Neutral Decision-Making . . . . . . . . . . . . . . . . . . . . 430
15.3.1 Nonlinear Model for Risk-Neutral Decision-Making . . . . . . 430
15.3.2 Linear Model for Risk-Neutral Decision-Making . . . . . . . . . 432
15.4 Model for Risk-Averse Decision-Making . . . . . . . . . . . . . . . . . . . . . . 435
15.5 Model for Mean-Risk Decision-Making . . . . . . . . . . . . . . . . . . . . . . . 436
15.6 Computational Examples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 437
15.7 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 445
Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 448

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 449

Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 463
List of Figures

1.1 A multi-tier supply chain network . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

1.2 Distribution of cost: VaRc vs. CVaRc . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.3 Distribution of service level: VaRsl vs. CVaRsl . . . . . . . . . . . . . . . . . . . . 7
1.4 A multi-portfolio approach to supply chain disruption management . . . 14

2.1 Supply portfolio selection under disruption risks . . . . . . . . . . . . . . . . . . . 23

2.2 Risk-neutral supply portfolio for model SP E(c): 10 suppliers . . . . . . . 33
2.3 Risk-averse supply portfolios and cost distributions for model
SP CV(c): 10 suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
2.4 Risk-averse supply portfolios for different local disruption
probabilities for model SP CV(c): 10 suppliers . . . . . . . . . . . . . . . . . . . . 36
2.5 Pareto front for mean-risk model SP ECV(c): 10 suppliers,
α = 0.9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
2.6 Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
2.7 Risk-averse supply portfolios: (a) model SP CV(c), (b) model
SP CV(sl) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

3.1 Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
3.2 Risk-neutral dynamic supply portfolio: (a) model DSP E(c), (b)
model DSP E(c) with delay penalty neglected, (c) model DSP E(sl) . . 61
3.3 Expected risk-neutral dynamic supply portfolio: (a) model DSP E(c),
(b) model DSP E(sl) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
3.4 Risk-averse dynamic supply portfolio for model DSP CV(c): α = 0.5
and α = 0.99 (nd—neglected delay penalty) . . . . . . . . . . . . . . . . . . . . . . 64
3.5 Risk-averse dynamic supply portfolios for model DSP CV(c) and
LDN scenario . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
3.6 Probability mass function for model DSP CV(c) and α = 0.99:
multinomial vs. binomial scenarios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

xxiii
xxiv List of Figures

4.1 Optimal supply portfolio for model ReSP E: (a) p∗ = 0.001,

pi ∈ [0, 0.06], i ∈ I, (b) p∗ = 0.01, pi ∈ [0.06, 0.15], i ∈ I (P—protected
supplier) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
4.2 Optimal supply portfolio for model ReSP CV: (a) p∗ = 0.001,
pi ∈ [0, 0.06], i ∈ I, (b) p∗ = 0.01, pi ∈ [0.06, 0.15], i ∈ I . . . . . . . . . . . . 96
4.3 Pareto front for model ReSP ECV: α = 0.99, p∗ = 0.001,
pi ∈ [0, 0.06], i ∈ I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
4.4 Optimal supply portfolio and probability mass function for model
ReSP ECV: p∗ = 0.01, pi ∈ [0.06, 0.15], i ∈ I, α = 0.99, λ = 0.99 . . . 99
4.5 Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
4.6 Optimal supply portfolio for model ReSP(mlp) CV: (a) p∗ = 0.001,
pi ∈ [0, 0.06], i ∈ I, (b) p∗ = 0.01, pi ∈ [0.06, 0.15], i ∈ I . . . . . . . . . . . . 103

5.1 A two-tier supply chain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113

5.2 Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130
5.3 Distribution of cost per product for risk-averse supply portfolio with
α = 0.99 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
5.4 Distribution of customer service level for risk-averse supply portfolio
with α = 0.99 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
5.5 Expected production schedule for risk-averse supply portfolio with
α = 0.99 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136
5.6 Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
5.7 Distribution of cost per product for risk-averse solution with
α = 0.99 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142
5.8 Distribution of customer service level for risk-averse solution with
α = 0.99 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
5.9 Expected cumulative production for risk-averse solution with
α = 0.9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144
5.10 Distribution of demand fulfillment rate: (a) model SPSm CV(sl) for
demand fulfillment rate, (b) model SPSm CV(sl) for order fulfillment
rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148
5.11 Expected and expected worst-case cumulative production for α = 0.9
and λ = 0.5: (a) model SPSm E(c)CV(sl) for demand fulfillment
rate, (b) model SPSm E(c)CV(sl) for order fulfillment rate . . . . . . . . . 149

6.1 A multi-tier supply chain network . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156

6.2 Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171
6.3 Expected solution values:(a) single batch shipping, (b) individual
shipping, (c) multiple batch shipping . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176
6.4 Nondominated supply portfolios: (a) single batch shipping, (b)
individual shipping, (c) multiple batch shipping . . . . . . . . . . . . . . . . . . . 177
6.5 Expected supplies, production, and deliveries for maximum service
level (λ = 0): single batch shipping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178
6.6 Expected supplies, production, and deliveries for λ = 0.5: single
batch shipping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179
List of Figures xxv

6.7 Expected supplies, production, and deliveries for minimum cost

(λ = 1): single batch shipping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180
6.8 Expected supplies, production, and deliveries for λ = 0.5: individual
shipping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181
6.9 Expected supplies, production, and deliveries for λ = 0.5: multiple
batch shipping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182
6.10 Supplies, production, and deliveries for the expected value
problem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187

7.1 Expected production schedules: (a) order fulfillment rate; (b) demand
fulfillment rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208
7.2 Expected production schedules for diversified customer orders: (a)
order fulfillment rate; (b) demand fulfillment rate . . . . . . . . . . . . . . . . . . 210
7.3 Nondominated supply portfolios: diversified customer orders . . . . . . . . 212
7.4 Pareto front for model SPSW E: diversified customer orders . . . . . . . . 212

8.1 Distribution of cost per product for α =0.75 and 0.99 . . . . . . . . . . . . . . . 229
8.2 Distribution of service level for α = 0.75 and 0.99 . . . . . . . . . . . . . . . . . 231
8.3 Expected production schedules for α = 0.99 . . . . . . . . . . . . . . . . . . . . . . 232
8.4 Expected worst-case production schedules for maximum service
level, α = 0.99 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233
8.5 Expected worst-case production schedules for minimum cost,
α = 0.99: (a) g j = 2a j maxi∈I (oi ), (b) g j = 4a j maxi∈I (oi ) . . . . . . 234

9.1 Primary and recovery supply portfolio selection under disruption

risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248
9.2 Hierarchical selection of supply portfolios . . . . . . . . . . . . . . . . . . . . . . . . 255
9.3 Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262

10.1 Primary (a) and recovery (b) flow of parts under disruption risks . . . . . 288
10.2 Hierarchical selection of supply and demand portfolios . . . . . . . . . . . . . 298

11.1 Allocation of demand among assembly plants: (a) model

DSupport2bc E, (b) model DSupport2wc E,
(c) model DSupport E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335
11.2 Impact of regional disruption probability on the expected
cost: g = 100 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 336

12.1 Primary (γis vi ) and recovery (Visj , wsj ) flow of parts,

and products (Qsj ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350
12.2 Expected cumulative production and shortage of products for model
SupportPIS CV(c), α = 0.99: (a) constant demand pattern, (b)
increasing demand pattern, (c) decreasing demand pattern . . . . . . . . . . . 357
12.3 Expected worst-case cumulative production and shortage of products
for model SupportPIS CV(c), α = 0.99: (a) constant demand
pattern, (b) increasing demand pattern, (c) decreasing demand pattern . 358
xxvi List of Figures

12.4 Expected cumulative production and shortage of products for model

SupportPIS CV(sl), α = 0.99: (a) constant demand pattern, (b)
increasing demand pattern, (c) decreasing demand pattern . . . . . . . . . . . 359
12.5 Expected worst-case cumulative production and shortage of products
for model SupportPIS CV(sl), α = 0.99: (a) constant demand
pattern, (b) increasing demand pattern, (c) decreasing demand pattern . 360
12.6 Expected cumulative production and shortage of products for model
SupportPIS CV(c), α = 0.5: (a) constant demand pattern, (b)
increasing demand pattern, (c) decreasing demand pattern . . . . . . . . . . . 361

13.1 A multi-tier, geographically dispersed supply chain network . . . . . . . . . 370

13.2 Recovery flows of parts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377
13.3 A four-tier supply chain dispersed over three geographic regions . . . . . 387
13.4 Suppliers characteristics for regional disruption probability (ii) . . . . . . 389
13.5 Probability mass functions for model ResMTSupport CV(c):
α = 0.99 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 393

14.1 Recovery flows of parts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 412

15.1 Probability mass function for risk-neutral model Cyberport E with

B = $150, 000: Expected loss = $63,842 . . . . . . . . . . . . . . . . . . . . . . . . . 441
15.2 Probability mass function for risk-neutral model Cyberport EB:
Required budget = $28,000, Expected cost = $132,545 . . . . . . . . . . . . . 442
15.3 Probability mass function for risk-averse model Cyberport CV
with B = $150, 000: α = 0.99, CVaR = $921,449, VaR = $414,500,
Expected cost = $92,045 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 443
15.4 Probability mass function for risk-averse model Cyberport CVB:
α = 0.99, CVaR = $652,214, VaR = $59,000, Required
budget = $258,000, Expected cost = $31,332 . . . . . . . . . . . . . . . . . . . . . 444
15.5 Pareto front for mean-risk model Cyberport EBCV: α = 0.9 . . . . . . . 445
List of Tables

2.1 Notation: static supply portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

2.2 Problem variables: static supply portfolio . . . . . . . . . . . . . . . . . . . . . . . . 23
2.3 Risk-neutral solutions for model SP E(c): single-region sourcing . . . 31
2.4 Risk-averse solutions: single-region sourcing . . . . . . . . . . . . . . . . . . . . 32
2.5 Probability of cost per part for optimal risk-averse supply portfolios:
10 suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
2.6 Solutions results for model SP CV(c) with binary assignment
variables vi j ∈ {0, 1}: 10 suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
2.7 Risk-averse solutions: multi-region sourcing . . . . . . . . . . . . . . . . . . . . . 40
2.8 Managerial insights: static supply portfolio . . . . . . . . . . . . . . . . . . . . . . 42

3.1 Notation: dynamic supply portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

3.2 Problem variables: dynamic supply portfolio . . . . . . . . . . . . . . . . . . . . . 51
3.3 Risk-neutral solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
3.4 Risk-averse solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
3.5 Solution results for different shortage-to-delay unit penalty ratio . . . . 67
3.6 Risk-neutral solutions for LDN scenarios . . . . . . . . . . . . . . . . . . . . . . . . 68
3.7 Risk-averse solutions for LDN scenarios . . . . . . . . . . . . . . . . . . . . . . . . 69
3.8 Probability of cost per part for model DSP CV(c): LDN scenarios . . 70
3.9 Probability of fulfillment rate for model DSP CV(sl):
LDN scenarios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
3.10 Managerial insights: dynamic supply portfolio . . . . . . . . . . . . . . . . . . . 71

4.1 Notation: resilient supply portfolio, single-level protection . . . . . . . . . 79

4.2 Problem variables: resilient supply portfolio, single-level
protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
4.3 Notation: resilient supply portfolio, multi-level protection . . . . . . . . . . 89
4.4 Solution results for model ReSP E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
4.5 Solutions results for model ReSP CV . . . . . . . . . . . . . . . . . . . . . . . . . . 95

xxvii
xxviii List of Tables

4.6 Probability of cost per part for optimal supply portfolios: p∗ = 0.001,
pi ∈ [0, 0.06], i ∈ I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
4.7 Nondominated solutions for mean-risk model ReSP ECV:
α = 0.99, p∗ = 0.001, pi ∈ [0, 0.06], i ∈ I . . . . . . . . . . . . . . . . . . . . . . . . 98
4.8 Solution results for model ReSP(mlp) E . . . . . . . . . . . . . . . . . . . . . . . . 101
4.9 Solutions results for model ReSP(mlp) CV . . . . . . . . . . . . . . . . . . . . . 102
4.10 Managerial insights: resilient supply portfolio . . . . . . . . . . . . . . . . . . . . 104

5.1 Notation: supply portfolio selection and production scheduling . . . . . 114

5.2 Problem variables: supply portfolio selection and production
scheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
5.3 Risk-neutral solutions: single vs. dual sourcing . . . . . . . . . . . . . . . . . . . 131
5.4 Risk-averse minimization of cost: single vs. dual sourcing . . . . . . . . . 131
5.5 Risk-averse maximization of service level: single vs. dual sourcing . . 132
5.6 Risk-averse supply portfolios for suppliers offering similar prices . . . 133
5.7 Risk-averse solutions for reduced penalty costs: single vs. dual
sourcing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
5.8 Input parameters: supply portfolio selection and production
scheduling, single vs. multiple sourcing . . . . . . . . . . . . . . . . . . . . . . . . 139
5.9 Risk-averse minimization of cost: single vs. multiple sourcing . . . . . . 140
5.10 Risk-averse maximization of service level: single vs. multiple
sourcing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
5.11 Single vs. multiple sourcing solution . . . . . . . . . . . . . . . . . . . . . . . . . . . 145
5.12 Order vs. demand fulfillment rate: risk-averse multiple sourcing . . . . . 147
5.13 Nondominated solutions for mean-risk model SPSm E(c)CV(sl):
α = 0.9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150
5.14 Managerial insights: supply portfolio selection and production
scheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152

6.1 Notation: supply portfolio selection and production and distribution

scheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157
6.2 Problem variables: supply portfolio selection and production and
distribution scheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160
6.3 Notation: expected value problem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169
6.4 Input parameters: supply portfolio selection and production and
distribution scheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172
6.5 Risk-neutral solutions: single batch shipping . . . . . . . . . . . . . . . . . . . . . 173
6.6 Risk-neutral solutions: individual shipping . . . . . . . . . . . . . . . . . . . . . . 174
6.7 Risk-neutral solutions: multiple batch shipping . . . . . . . . . . . . . . . . . . . 175
6.8 Risk-averse solutions for model SCS1 CV . . . . . . . . . . . . . . . . . . . . . . 183
6.9 Solution results for the expected value model ESCS1 . . . . . . . . . . . . . 185
6.10 Managerial insights: supply portfolio selection and production and
distribution scheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186
List of Tables xxix

7.1 Notation: equitably efficient supply portfolio selection and

production scheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197
7.2 Problem variables: equitably efficient supply portfolio selection and
production scheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199
7.3 Input parameters: equitably efficient supply portfolio selection and
production scheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205
7.4 Solution results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207
7.5 Solution results: diversified customer orders . . . . . . . . . . . . . . . . . . . . . 209
7.6 Nondominated solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211
7.7 Nondominated solutions: diversified customer orders . . . . . . . . . . . . . . 211
7.8 Managerial insights: equitably efficient supply portfolio selection
and production scheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213

8.1 Notation: robust supply portfolio selection and production

scheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217
8.2 Problem variables: robust supply portfolio selection and production
scheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218
8.3 Input parameters: robust supply portfolio selection and production
scheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226
8.4 Risk-neutral solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227
8.5 Risk-averse solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227
8.6 Robust solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228
8.7 Minimum and maximum values of objective functions . . . . . . . . . . . . . 228
8.8 Solution results for a double unit penalty cost,
g j = 4a j maxi∈I (oi ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235
8.9 Mean-risk solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236
8.10 Managerial insights: robust supply portfolio selection and production
scheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238

9.1 Notation: primary and recovery supply portfolio selection and

production scheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245
9.2 Problem variables: primary and recovery supply portfolio selection
and production scheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248
9.3 Input parameters: primary and recovery supply portfolio selection
and production scheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260
9.4 Multi-level disruption scenarios: λ1s , λ2s , λ3s , λ4s ; s = 1, . . . , 256 . . . . . 261
9.5 Solution results for a common disruption start time: C/D = 0.47 . . . . 263
9.6 Solution results for a common disruption start time: C/D = 0.93 . . . . 264
9.7 Solution results for a common disruption start time: C/D = 1.4 . . . . . 265
9.8 Optimal recovery supply portfolios for a common disruption
start time, C/D = 1.4, g = 1, 10, 102 , 103 , 104 : integrated
approach/hierarchical approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 266
9.9 Solution results for different disruption start times: C/D = 0.93 . . . . . 269
9.10 Worst-case scenarios: C/D = 0.93, g = 100 . . . . . . . . . . . . . . . . . . . . . 270
xxx List of Tables

9.11 Risk-averse solutions for a common disruption start time:

C/D = 0.93 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272
9.12 Risk-averse solutions for different disruption start times:
C/D = 0.93 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273
9.13 Managerial insights: primary and recovery supply portfolio selection
and production scheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274

10.1 Notation: supply and demand portfolio selection and production

scheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279
10.2 Problem variables: supply and demand portfolio selection and
production scheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283
10.3 Notation and variables: multiple part types and product types . . . . . . . 290
10.4 Input parameters: supply and demand portfolio selection and
production scheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306
10.5 Supply and demand portfolios: model DSupport E,
period-independent demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 308
10.6 Supply and demand portfolios: model DSupport E,
period-dependent demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 309
10.7 Supply and demand portfolios: hierarchical approach . . . . . . . . . . . . . . 309
10.8 Supply and demand recovery portfolios,
s +V s ,V s +V s ,V s +V s ,V s +V s , Qs , Qs ) and associated cost
(V11 12 21 22 31 32 41 42 1 2
and service, for selected supply and production disruption scenarios
s ∈ S: hierarchical approach, g = 100 . . . . . . . . . . . . . . . . . . . . . . . . . . . 310
10.9 Computational results: model DSupport E . . . . . . . . . . . . . . . . . . . . . . 312
10.10 Worst-case disruption scenarios: integrated/hierarchical approach,
g = 100 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 314
10.11 Risk-averse solutions for model DSupport CV: g = 100 . . . . . . . . . . 316
10.12 Best-case and worst-case results for risk-averse model
DSupport CV: g = 100 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 316
10.13 Managerial insights: supply and demand portfolio selection and
production scheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317

11.1 Notation: two-period approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 323

11.2 Second stage variables: two-period approach . . . . . . . . . . . . . . . . . . . . . 326
11.3 Input parameters: two-period approach . . . . . . . . . . . . . . . . . . . . . . . . . . 332
11.4 Solution results: two-period vs. multi-period models . . . . . . . . . . . . . . 334
11.5 Managerial insights: two-period approach . . . . . . . . . . . . . . . . . . . . . . . 337

12.1 Notation: supply portfolio selection and production and inventory

scheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342
12.2 Problem variables: supply portfolio selection and production and
inventory scheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 346
12.3 Input parameters: supply portfolio selection and production and
inventory scheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 353
12.4 Solution results for model SupportPIS CV(c) . . . . . . . . . . . . . . . . . . . 355
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