Ripple effect quantification by supplier risk exposure assessment

Supply chain (SC) disruptions are considered events that temporarily change the structural design and operational policies of SCs with significant resilience implications. The SC dynamics and complexity drive such disruptions beyond local event node boundaries to affect large parts of the SC. The propagation of a disruption through a SC and its associated impact is called the ripple effect. Previous approaches to ripple effect modelling have mainly focused on estimating the likelihood of a disruption; our study looks at the disruption consequences. We develop a new model to assess the ripple effect of a supplier disruption, based on possible maximum loss. Our risk exposure model quantifies the ripple effect, comprehensively combining features such as financial, customer, and operational performance impacts, consideration of multi-echelon inventory, disruption duration, and supplier importance. The ripple effect quantification is validated with simulations using actual company data. The findings suggest that the model can be of value in revealing latent high-risk supplier relations, and in prioritising risk mitigation efforts when probability estimations are difficult. The performance indicators proposed can be used by managers to analyse disruption propagation impact and to identify the set of most critical suppliers to be included in the disruption risk analysis.