Operations Management: Sustainability and Supply Chain Management, Twelfth Edition

Evaluating Disaster Risk in the Supply Chain

Disasters that disrupt supply chains can take many forms, including tornadoes, fires, hurricanes, typhoons, tsunamis, earthquakes, and terrorism. When you are deciding whether to purchase collision insurance for your car, the amount of insurance must be weighed against the probability of a minor accident occurring and the potential financial worst-case scenario if an accident happens (e.g., “totaling” of the car). Similarly, firms often use multiple suppliers for important components to mitigate the risks of total supply disruption.

As shown in Example S1, a decision tree can be used to help operations managers make this important decision regarding the number of suppliers. We will use the following ...