Making Supply Chains Resilient to Floods Using a Bayesian Network

Abstract:

Natural hazards distress the global economy by disrupting the interconnected supply chain networks. Manufacturing companies have created cost-efficient supply chains by reducing inventories, streamlining logistics and limiting the number of suppliers. As a result, today’s supply chains are profoundly susceptible to systemic risks. In Thailand, for example, the GDP growth rate declined by 76 % in 2011 due to prolonged flooding. Thailand incurred economic damage including the loss of USD 46.5 billion, approximately 70% of which was caused by major supply chain disruptions in the manufacturing sector. Similar problems occurred after the Great East Japan Earthquake and Tsunami in 2011, the Mississippi River floods and droughts during 2011 – 2013, and Hurricane Sandy in 2012. This study proposes a methodology for modeling supply chain disruptions using a Bayesian network analysis (BNA) to estimate expected values of countermeasures of floods, such as inventory management, supplier management and hard infrastructure management. We first performed a spatio-temporal correlation analysis between floods and extreme precipitation data for the last 100 years at a global scale. Then we used a BNA to create synthetic networks that include variables associated with the magnitude and duration of floods, major components of supply chains and market demands. We also included decision variables of countermeasures that would mitigate potential losses caused by supply chain disruptions. Finally, we conducted a cost-benefit analysis by estimating the expected values of these potential countermeasures while conducting a sensitivity analysis. The methodology was applied to supply chain disruptions caused by the 2011 Thailand floods. Our study demonstrates desirable typical data requirements for the analysis, such as anonymized supplier network data (i.e. critical dependencies, vulnerability information of suppliers) and sourcing data(i.e. locations of suppliers, and production rates and volume), and data from previous experiences (i.e. companies’ risk mitigation strategy decisions).