Ripple Effect Modeling of Supplier Disruption on the Distributor in the Three-stage Supply Chain

The disruption caused by natural, economic and political crises, piracy, and disturbance in information systems and human agents (low probability factors with high impact intensity) travel like a wave from the upstream of the supply chain, i.e. from the suppliers to its downstream. The ripple effect is the phenomenon of disruption in the supply chain with serious impacts on the performance of the supply chain. It can influence sales, on-time delivery, and profits. It has more serious consequences in reducing short-term performance, which leads to market share reduction. This disruption affects the entire supply chain. It destroys the capacity or inventory of the chain, disrupts its facilities, and causes material loss and production reduction in the next stages of the supply chain. Since disruptions are inevitable in supply chains, it is necessary to address this issue and evaluate the impact of disruption risk and its distribution on the supply chain. The purpose of the present study is to provide a simulation model for the behavior of disruption propagation in a three-stage supply chain. It tries to take into account both the vulnerability and recovery capabilities of the disrupted supplier and to determine a criterion for quantitatively predicting the ripple effect of the supplier disruption on the distributor. As the disruption in suppliers prolongs deliveries to customers, and any increase in lead time will decrease sales, the current study seeks to present the quantitative estimation of the ripple effect of supplier disruption on the distributor in terms of lead time and lost sales.
First, using a discrete-time Markov chain, a recovery and vulnerability model was proposed for long-term disrupted suppliers with three states of operational, semi-operational, and fully disrupted. The model was integrated with a Bayesian network to show the way the supplier disruption spreads to the manufacturer and distributor by dynamic Bayesian modeling. Then, in order to quantitatively show the ripple effect of the supplier disruption on the distributor, a criterion was established in terms of the lead time for the delivery of goods and lost sales based on the decision tree and the data of the dynamic Bayesian simulation model.
The model was presented through figures, definitions, and mathematical relations. Its capability was shown by an example based on the status of suppliers, manufacturers, and distributors in the production of a voltage-increasing electronic component. The obtained results showed that when a disturbance occurs in upstream of a supply chain, it spreads as a ripple to its downstream and affects its performance.
The proposed model by this study can quantitatively show the spread and impact of disruption along the supply chain. It can reveal the hidden risk paths and the role of each entity in the chain at the time of disruption. By quantitatively estimating the vulnerability caused by any disruption in the supply chain, the proposed model can help managers identify deviations or the risk of deviations in the chain in time. It can also help them with analyzing and performing control measures to restore the operation and process of the chain and prioritize possible policies and recovery. It is also useful for the selection of suppliers and inventory plans and making the right decisions to reduce the vulnerability of the supply chain sectors quickly with minimal cost.