Abstract—This paper addresses the comparison and selection decision of reactivestrategies for supply disruption management. We consideran assemble-to-order supply chain with one manufacturer who employs asingle-sourcing strategy for each kind of component. The manufacturer assemblesproducts for customers using components purchased from the suppliers in ajust-in-time environment. Demand for the products is time-sensitive. We proposeand compare three pure reactive strategies and two dynamic reactive policiesfor managing supply disruption. In the pure reactive strategies, only one kindof strategy is adopted during the disruption. But strategies adopted in thedynamic pure reactive policies change with the passage of time during the disruption.In the dynamic mixed strategy with customer choices, the manufacturer can useboth backup source to offer on-time delivery and compensation policy tocompensate customers for waiting in each period during the disruption. We findthat the backup sourcing strategy is preferred at the beginning of the supplydisruption while the compensation strategy is preferred as time elapses. Thedynamic pure strategy is superior to any other of the pure reactive strategies.The dynamic mixed strategy with customer choices is superior to the pure backupsourcing strategy. The backup cost and customer sensitivity are two determiningfactors in the manufacturer’s choice of the reactive strategies. 

Index Terms— supply disruption,reactive strategy, assemble-to-order

I. Introduction

As supplychains are extendedby outsourcing and stretched by globalizationin today’s uncertain business environment,companies are more vulnerable to supply disruptions. Supply disruption refers to the potential occurrence of anincident associated with the inbound supply which would result in the inabilityof the purchasing firm to meet demand [1]. The possiblecauses for supply disruptions are myriad, for instance, supplier bankruptcy, portstoppages,labor strikes, accidents and natural disasters, qualityissues and machine breakdown [2], [3].Forexample, the 2002 Longshoreman union strike at a U.S. West Coast portinterrupted transshipments and deliveries to many U.S. based firms [4].The lightning bolt that, in March 2000, struck a Philipssemiconductor plant in Albuquerque, New Mexico, created a 10-minute blaze thatcontaminated millions of chips and subsequently delayed deliveries to Nokia andEricsson [5]. 

The costof supply chain disruptions to a company can be of significance. Supply disruptions could have a major impact on a firm’s profitability. Supplydisruption results in excessive downtime of production resources, upstream anddownstream supply chain repercussions, and eventually a loss in the market valueof the firm [6]. Disruptions can be costly in supply chainsystems and can cause a variety of problems such as long lead-times,stock-outs, inability to meet customer demand and increases in costs [7].Compaq suffered $150 million loss in the 3rd quarter 2001 due to the disruptionof air transport in South-East Asian region caused by 9/11 attacks and a seriesof typhoons [8]. Ericsson lost many monthsof mobile phone production with a loss of 400 million Euros due to thedisruption of Philips’s semiconductor plant in 2000, and the accident finallyhad a great impact on Ericsson’s decision to withdraw from the mobile phoneterminal business [9].