International Journal of Production Research

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The impact of flexibility and redundancy on

improving supply chain resilience to disruptions

Masoud Kamalahmadi, Mansoor Shekarian & Mahour Mellat Parast

To cite this article: Masoud Kamalahmadi, Mansoor Shekarian & Mahour Mellat Parast (2021):
The impact of flexibility and redundancy on improving supply chain resilience to disruptions,
International Journal of Production Research, DOI: 10.1080/00207543.2021.1883759

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INTERNATIONAL JOURNAL OF PRODUCTION RESEARCH
https://doi.org/10.1080/00207543.2021.1883759

The impact of flexibility and redundancy on improving supply chain resilience to

disruptions
Masoud Kamalahmadia , Mansoor Shekarianb and Mahour Mellat Parastc
a Miami Herbert Business School, University of Miami; b Lundquist College of Business, University of Oregon, Eugene; c Ira A. Fulton Schools of
Engineering, Arizona State University, Tempe

ABSTRACT ARTICLE HISTORY

This paper examines the relative impact on supply chain responsiveness of adding flexibility and Received 18 October 2019
redundancy. We seek to investigate the effectiveness of flexibility and redundancy in terms of min- Accepted 10 January 2021
imising expected supply chain cost and maximizing expected service delivery when a supply chain KEYWORDS
is exposed to supplier and environmental disruptions. Compared to a supply chain that uses neither Supply chain management;
strategy and is exposed to supplier and environmental disruptions, both practices reduce expected flexibility; supply network;
lost sales, reduce expected total cost, and increase the expected service level. Our results show that enterprise risk management;
the backup-suppliers practice is more effective than the flexible-suppliers practice, as measured operations management
by cost reduction and service-level improvement. In addition, we show that a hybrid practice cre-
ated by adding some level of flexibility to a backup-suppliers practice is more desirable in terms
of lowering pre-disruption investment, increasing the responsiveness of the supply chain, and low-
ering the expected total cost. Moreover, the result of the simulation shows that on average, the
proposed stochastic model could decrease the company’s total cost by 5.51%. It also shows that
planning and investing in proactive demand management could decrease the company’s total cost
by 7.87%. Our findings provide insights into the contingencies that support implementation of each
practice.

1. Introduction are challenged (Craighead et al. 2007; Parast and Shekar-

The past few decades have been notable for major
changes in supply chains due to an increasing level of
globalisation and a higher rate of innovation (Hosseini,
Ivanov, and Dolgui 2019a; Kleindorfer and Saad 2005;
Tang 2006a). Based on Xu et al. (2020), 1069 events of
supply chain disruption happened in the first half of
2018, which was the highest rate in three years. Catas-
trophic events such as the recent COVID-19 pandemic
in 2020, hurricane Harvey in Houston in 2017, hur-
ricane Maria in Puerto Rico in 2017, the 2010 erup-
tion of a volcano in Iceland, and the 2011 Japanese
tsunami caused serious damage and financial losses to
several industries such as the auto and computer indus-
tries (Chen, Xu, and Zhou 2020; Dolgui, Ivanov, and
Sokolov 2018; Dolgui, Ivanov, and Rozhkov 2020; Duong
and Chong 2020; Esmaeili-Najafabadi et al. 2019; Fiksel
et al. 2015; Hosseini et al. 2019b; Inman and Blumenfeld
2014; Ivanov et al. 2016; Olivares Aguila and ElMaraghy
2018; Pavlov et al. 2019b; Shekarian, Nooraie, and Parast
2020). Consequently, for firms with global supply chains,
the effectiveness and responsiveness of traditional cost-
driven supply chains designed for stable environments
ian 2019; Ruiz-Benítez, López, and Real 2018; Tom-
lin 2006). Due to concerns about unexpected catas-
trophic events, researchers and practitioners increased
their focus on supply chain risk management (SCRM)
(Ghadge, Dani, and Kalawsky 2012; Sodhi, Son, and Tang
2012; Tang and Musa 2011; Zhu, Krikke, and Caniëls
2017). SCRM is concerned with identifying sources of
risks and vulnerabilities in a supply chain, then devel-
oping strategies to mitigate disruptions by making the
supply chain more resilient and responsive (Brusset and
Teller 2017; Ivanov 2020a; Jüttner, Peck, and Christopher
2003).
There has been increased awareness regarding the
importance of supply chain responsiveness and miti-
gating supply chain disruptions (Ciccullo et al. 2018;
Dubey, Gunasekaran, and Childe 2018; Elzarka, 2013;
Parast, Sabahi, and Kamalahmadi 2019; Paul et al. 2019;
Rezapour et al. 2018). After being disrupted, a resilient
supply chain can quickly return to its original state or
even move to a new, more desirable state (Behzadi,
O’Sullivan, and Olsen 2020; Fattahi, Govindan, and Mai-
hami 2020). A study by Aon Risk Solutions found that

CONTACT Mahour Mellat Parast mahour.parast@asu.edu Ira A. Fulton Schools of Engineering, Arizona State University, Tempe, AZ 85281

© 2021 Informa UK Limited, trading as Taylor & Francis Group

2 M. KAMALAHMADI ET AL.
the percentage of global companies reporting a loss of
income because of supply chain disruptions increased
from 28% in 2011–42% in 2013 (Sáenz and Revilla 2014).
Based on Gunessee, Subramanian, and Ning (2018),
enterprises that have little flexibility and agility expose
themselves to the disastrous consequences of changes
due to facing catastrophic vulnerability. In addition,
Shekarian, Nooraie, and Parast (2020) showed that in
a rapidly changing environment, firms relying on their
supply chain to remain competitive must be more agile in
perceiving and developing opportunities, more respon-
sive to disruptions, and more resilient against external
threats. A recent study by Shih (2020) indicates that
the COVID-19 contagion has had a major impact on
Chinese manufacturers, and because of the central role
many Chinese companies play in the supply chains of
the world’s companies, the impact is being felt around
the world: ‘The disruption is particularly acute in the
electronics and auto industries, but it is also affecting
pharmaceutical, metals, and a wide range of consumer
and industrial products, including surgical gowns and
masks.’ The COVID-19 outbreak has already impacted
operations and supply chain activities at a large scale. It
is reported that 94% of the companies in the Fortune
1000 list were facing supply chain disruptions due to
the COVID-19 (Queiroz et al. 2020). Another study by
Sáenz and Revilla (2014) shows that approximately 60%
of the managers either do not actively work on SCRM
or do not believe that their company’s risk management
practices are effective. Thus, whether firms can benefit
from their investments in supply chain disruption man-
agement practices remains debatable, which warrants
further study to examine the overall impact of SCRM
practices.
Risks in a firm’s supply chains can arise from sources
such as the firm’s operations, suppliers, customers, and
the environment (Christopher and Peck 2004; Ivanov
et al. 2015). In this study, we focus on risks that
threaten supply chain flows by affecting the availabil-
ity of suppliers. These include supplier-induced risks
(e.g. the fire in a plant of one of Ericsson’s semi-
conductor suppliers, which cost Ericsson more than
400 million dollars (Baghalian, Rezapour, and Fara-
hani 2013)), and environmentally-induced risks (e.g.
hurricanes such as Harvey, Irma, and Maria in the U.S.
that disrupted a number of supply chains by making sup-
pliers in the affected areas unavailable for a period of
time). To cope with such risks, traditional supply chains
need to be redesigned with a focus on adding redundancy
and/or flexibility to their supply bases (Christopher and
Peck 2004; De Giovanni and Massabò 2018; Fiksel et al.
2015; Sreedevi and Saranga 2017). Firms can prepare for
disruptions and enhance their responsiveness through
creating redundancies across their supply chains. Hav-
ing multiple suppliers, safety stock, overcapacity, and
backup suppliers are instances of redundancies in a sup-
ply chain (Kamalahmadi and Parast 2017; Tang 2006b;
Tomlin 2006). Alternatively, firms can instill flexibility
in their supply base. Flexibility is defined as the ability
to take different positions to better respond to abnor-
mal situations and rapidly adapt to significant changes
in the supply chain (Lee 2004; Sreedevi and Saranga
2017). Having flexible transportation systems or adding
volume flexibility based on suppliers’ production capac-
ities are examples of the ways flexibility can be added
to a firm’s supply chain (Tang and Tomlin 2008; Tomlin
2006).1
The studies that examine the effectiveness of flexibil-
ity and redundancy as responsive strategies are mainly
anecdotal and conceptual, with some recent efforts to
quantify the cost and benefits of each. Some researchers
support flexibility over redundancy (Christopher and
Holweg 2011; Datta, Christopher, and Allen 2007; Sheffi
2005). Others argue that redundant resources such as
safety stock and emergency backup suppliers are pri-
mary solutions for enhancing supply chain responsive-
ness (Azadeh et al. 2014; Blackhurst, Dunn, and Craig-
head 2011; Jüttner and Maklan 2011; Ratick, Meacham,
and Aoyama 2008). Very few studies compare the two
practices (Carvalho et al. 2012a; Parast and Shekarian
2019; Zsidisin and Wagner 2010). Fundamental ques-
tions remain regarding the relative effectiveness of redun-
dant resources versus flexible resources, and under what
conditions each practice should be emphasized, given
the limited resources of organisations to develop capa-
bilities associated with both flexibility and redundancy
(Ghadge et al. 2013; Kamalahmadi and Parast 2016b).
Besides, flexibility and redundancy have been studied in
isolation. For example, Kamalahmadi and Parast (2017)
examined the impact of redundancy practices on supply
chain resilience under supply and environmental risks. In
addition, Shekarian, Nooraie, and Parast (2020) exam-
ined the impact of lexibility and agility on supply chain
responsiveness under demand and supply risks. No study
has examined the impact of both flexibility and redun-
dancy on supply chain resilience under supply and envi-
ronmental risks, to investigate the trade-off among them.
In this study, we consider both redundancy and flexibility
in one model and propose a hybrid policy. Furthermore,
those studies are based on one specific example; to add
credibility to generalising our results, we ran a number
of simulations designed to reveal any potential bias from
certain values of parameters. Thus, to the best of our
knowledge, this is the first study to examine the impact of
flexibility and redundancy in a supply chain under supply
and environmental risks.

Using a two-stage mixed-integer programming model,
this study contributes to the literature on supply chain
flexibility and redundancy in three ways: 1) It provides
insights into the ways a firm’s supplier selection and
demand allocation are affected by the selection and devel-
opment of capabilities based on volume flexibility or
backup suppliers. 2) It investigates trade-offs among sup-
ply chain resilience, risk, and cost to determine how
they interact. 3) It develops a more realistic supply chain
model where both primary suppliers and backup suppli-
ers are exposed to two types of disruptions: each supplier
is exposed to the risk of an internal disruption; and sup-
pliers in the same region are exposed to the risk of an
environmental disruption that could make all of them
simultaneously unavailable.
In line with Kamalahmadi and Parast (2017) and
Kamalahmadi and Parast (2016a), the two-stage mixed-
integer programming model in this study simultaneously
examines the impact of supplier disruptions and environ-
mental disruptions on a firm’s supply chain. We choose
backup suppliers as a redundancy practice and volume
flexibility as a flexibility practice. We use a numerical
example from the literature as a motivating example for
our model. To examine the generalizability of our find-
ings, we extend our numerical example by creating mul-
tiple settings, using simulations to test the robustness of
our results. We quantify the costs and benefits of backup
suppliers and flexible suppliers, then compare them to
each other and to a supply chain without flexibility or
redundancy.
Moreover, we consider a hybrid practice where backup
suppliers and volume flexibility are added to a supply
base together. We find that adding some level of flex-
ibility to the backup-suppliers practice is more desir-
able in terms of lowering pre-disruption investment and
increasing supply chain responsiveness, while lowering
expected total cost. To the best of our knowledge, this
is the first study to provide an integrated, simultaneous
assessment of the effectiveness of flexibility and redun-
dancy in improving firm responsiveness to supply chain
disruptions. We show that a hybrid flexible-backup sup-
ply base can be a desirable practice for improving firm
responsiveness to supply chain disruptions. Our analyses
provide a more nuanced understanding of the impact of
flexibility versus redundancy on mitigating supply chain
disruptions.
The rest of this paper is organised as follows. First,
we discuss the literature on flexibility and redundancy.
Then, the model’s indices, parameters, and variables are
specified, and a two-stage mixed – integer programming
model is developed. In order to examine how the model
behaves, a numerical example is presented to show the
trade-off among supply chain resilience, risk, and cost.
INTERNATIONAL JOURNAL OF PRODUCTION RESEARCH 3
This is followed by simulations and sensitivity analyses
on parameters in order to further examine the dynamics
of the model. Finally, we provide theoretical and manage-
rial implications of this research, limitations of the study,
directions for future research, and the conclusions of this
study.
2. Literature review
The study by Christopher and Peck (2004) was one of
the first studies to recommend flexibility and redundancy
as key hedges against disruptions. Redundancy refers
to practices in which a firm takes action in advance of
a disruption, incurring the cost of the action regard-
less of whether a disruption occurs. The most common
redundancy practices are keeping inventory, contracting
with backup suppliers, and investment in supplier pro-
tection (Knemeyer, Zinn, and Eroglu 2009; Sodhi and Lee
2007; Tomlin 2006). Pre-disruption investment in adding
redundancy has made these practices less attractive for
managers (Chopra and Sodhi 2014). A more attractive
alternative is to add flexibility to the supply base, which
entails a cost that is incurred only in the event of a disrup-
tion. (Fiksel et al. 2015; Tang and Tomlin 2008; Tomlin
2006). Table 1 presents a list of studies that emphasize
flexibility and redundancy with respect to supply chain
responsiveness.
The literature that compares flexible resources and
redundant resources can be divided into two groups.
Studies in the first group support flexibility over redun-
dancy. A theoretical study by Sheffi and Rice Jr (2005)
measured supply chain disruptions by company perfor-
mance in terms of sales, production level, profits, and
customer service. They provided a supply-chain view of
a resilient enterprise and used several examples from
practice to argue that while investing in flexibility and
investing in redundancy both increase cost, investing
in flexibility is the most important step a company can
take to be more resilient, because it helps the firm not
only with mitigating disruptions but also with day-to-day
operations. By considering customer-service level, pro-
duction changes over time, the average inventory at each
distribution centre, and the total average network inven-
tory as the performance measures, Datta et al. (2007)
developed an agent-based simulation model and after
using a case study, they drew two conclusions: flexibil-
ity is needed in all elements of a supply network; and
balancing flexibility and redundancy in production and
dispatching capabilities is required to enhance the opera-
tional resilience of a real-world supply network. Manuj
and Mentzer (2008) extensively reviewed the literature
and interviewed several senior supply chain executives,
then used as metrics of performance a reduction in cycle
4 M. KAMALAHMADI ET AL.

Table 1. Flexibility vs. Redundancy.

Author(s) and year Flexibility Redundancy Author(s) and year Flexibility Redundancy
Rice and Caniato 2003 ∗ ∗ Carvalho, Azevedo, and Cruz-Machado 2012b ∗ ∗
Christopher and Peck 2004 ∗ ∗ Klibi and Martel 2012 ∗ ∗
Chopra and Sodhi 2004 ∗ ∗ Ponis and Koronis 2012 ∗ ∗
Peck 2005 ∗ ∗ Wicher and Lenort 2013 ∗ ∗
Sheffi 2005 ∗ ∗ Pettit, Croxton, and Fiksel 2013 ∗ ∗
Sheffi and Rice Jr 2005 ∗ ∗ Johnson, Elliott, and Drake 2013 ∗ ∗
Sheffi 2006 ∗ ∗ Pal, Torstensson, and Mattila 2014 ∗ ∗
Tang 2006b ∗ ∗ Urciuoli et al. 2014 ∗ ∗
Tomlin 2006 ∗ ∗ Azadeh et al. 2014 ∗ ∗
Falasca, Zobel, and Cook 2007 ∗ ∗ Melnyk et al. 2014 ∗ ∗
Datta et al., 2007 ∗ ∗ Torabi, Baghersad, and Mansouri 2015 ∗ ∗
Ponomarov and Holcomb 2009 ∗ ∗ Kamalahmadi and Parast 2016a ∗ ∗
Briano et al. 2010 ∗ ∗ Kamalahmadi and Parast 2016b ∗ ∗
Pettit, Fiksel, and Croxton 2010 ∗ ∗ Kamalahmadi and Parast 2017 ∗ ∗
Zsidisin and Wagner 2010 ∗ ∗ Jain et al. 2017 ∗ ∗
Jüttner and Maklan 2011 ∗ ∗ Parast and Shekarian 2019 ∗
Carvalho, Duarte, and Cruz-Machado 2011 ∗ Pavlov et al. 2019a ∗
Gunasekaran, Rai, and Griffin 2011 ∗ Tan, Cai, and Zhang 2019 ∗
Christopher and Holweg 2011 ∗ Hosseini et al. 2019b
Blackhurst, Dunn, and Craighead 2011 ∗ Ivanov and Dolgui 2019
Carvalho et al. 2012a ∗ Shekarian, Nooraie, and Parast 2020

time, higher resilience, a higher level of relationship com-
mitment, and increased flexibility; the researchers con-
cluded that supply chain flexibility is one of the impor-
tant factors that affect the selection of risk-management
strategies. Christopher and Holweg (2011) used case
study evidence of firms that responded to turbulence
by adjusting their supply chains to emphasize flexibility
as the key in responding to disruptions. By consider-
ing stock-out costs, poor capacity utilisation, and costly
buffers as the metrics of performance, the researchers
showed that flexibility creates supply chain resilience by
enhancing prompt adaptability during turbulence. A lit-
erature review by Parast and Shekarian (2019) showed
that flexibility, redundancy, collaboration, and agility are
the most important antecedents of supply chain respon-
siveness to cope with supply chain disruptions. They
showed that more than 40% of the literature empha-
sized the crucial role of flexibility in enhancing supply
chain resilience. Pavlov et al. (2019a) developed a prob-
lem of contingency-plan optimisation for seaport oper-
ations under supply and network structural dynamics
as a trade-off between sustainable resource utilisation
and supply chain resilience. The researchers used a flex-
ible policy that allowed utilisation of network potential
capacities according to structural dynamics and ratio-
nal use of the structural functional network redundancy,
which in turn made it possible to increase both the
effectiveness and efficiency of network operations and
also to balance resilience and sustainability. In addi-
tion, a theoretical study by Ivanov and Dolgui (2019)
suggested integrating the concepts of efficiency and
resilience to enhance each other based on synergic effects.
The researchers suggested a new perspective in supply
chain disruption management called low-certainty-need
supply chains, and their study identified three key char-
acteristics of low-certainty-need supply chains: structural
complexity reduction, process and resource utilisation
flexibility, and non-expensive parametric redundancy.
Shekarian, Nooraie, and Parast (2020) developed a multi-
objective mixed-integer programing model by using mul-
tiple sites, multiple transportation channels, multiple
product planning, and multiple periods to examine the
effect of supply chain flexibility and agility on respon-
siveness under supply and demand risks. The researchers
showed that investing in supply chain flexibility is more
profitable for firms in comparison with investing in
agility.
Studies in the second group support investment in
redundancy over improved flexibility. Ratick, Meacham,
and Aoyama (2008) developed a set cover location model
for a supply chain that relies on emergency backup
and storage facilities, using minimisation of the separa-
tion distance between the facilities as the performance
measure. They found that this strategy is a powerful
tool to help firms achieve supply chain responsiveness.
Using systems theory and a resource-based view of firms
as the theoretical underpinnings, Blackhurst, Dunn, and
Craighead (2011) conducted an empirical analysis of
seven firms and reported that five of them considered
holding safety stock throughout the supply chain as a
primary strategy to mitigate the impact of disruptions.
Sawik (2013) developed a mathematical model in order
to achieve the minimum cost for a firm that is inter-
ested in investment in supplier protection and keeping

emergency inventory in the firm’s facilities; the model was
used to show the effectiveness of these strategies. Using
a combination of optimisation and modeling approaches
with regard to average time in system, utility of resources,
number of breakdowns, and total cost as the output met-
rics, Azadeh et al. (2014) concluded that redundancy
and visibility are the most important principles of supply
chain responsiveness. Using a simulation-based analy-
sis for decision makers to determine the strategies and
parameters best suited for building resilience in a sup-
ply chain network, Tan, Cai, and Zhang (2019) showed
that mitigation strategies are more suitable for long-
term disruptions, and contingency strategies are more
effective for short-term disruptions. In addition, they
found that a strategy of redundant capacity enables a
supply chain network to have lower time-to-recover,
whereas the backup supply chain strategy has the lowest
cost among all strategies. Hosseini et al. (2019b) devel-
oped a stochastic bi-objective mixed-integer program-
ming model for supplier selection and order allocation
to support decision-making in how and when to use
proactive or reactive resilience strategies including sup-
plier segregation, backup supplier contracts, supplier reli-
ability, surplus inventory, and supplier restoration capa-
bility. Their results can help suppliers to find the opti-
mal set of operational decisions that enhance resilience
capabilities.
This study evaluates three practices. The first prac-
tice uses backup suppliers, a common implementation of
redundancy. The second practice uses flexible suppliers
(suppliers with volume flexibility), a common implemen-
tation of flexibility. The third practice, called a hybrid
practice, combines features of both backup suppliers and
flexible suppliers. The following section reviews the liter-
ature on the use of backup suppliers and the literature on
the use of flexible suppliers.
2.1. Practice of using backup suppliers (Investment
in redundancy)
A backup supplier is a secondary supplier that is used
only when a primary supplier is disrupted. Contracting
with a backup supplier ensures that the flow of mate-
rial does not stop if disruption happens in other sources
(Sodhi and Lee 2007; Tomlin 2006). Since the firm makes
the contract prior to any disruption, this strategy is classi-
fied as a redundancy practice. Previous studies in backup-
supplier strategies emphasize the importance of this strat-
egy in supply chain risk management. Hou, Zeng, and
Zhao (2010) studied a buy-back contract between a buyer
and a backup supplier when the main supplier experi-
ences disruptions. Using an expected profit function, the
optimal decisions of the contract are derived through
INTERNATIONAL JOURNAL OF PRODUCTION RESEARCH 5
a sequential optimisation process. In addition, whole
sales contracts, option contracts, and purchases from the
spot market were considered by Keyvanloo, Kimiagari,
and Esfahanipour (2015) as sourcing alternatives for the
buyer in a multi-period problem with time-correlated
uncertain demand and prices. In another study, Chen,
Zhao, and Zhou (2012) considered a periodic-review
inventory system with an unreliable supplier that may
be disrupted and a backup supplier (with higher prices
and limited capacity) that can be used during disruptions.
They developed a mathematical model to use to deter-
mine the optimal order practice in the designed environ-
ment. Torabi, Baghersad, and Mansouri (2015) studied
a supplier selection and allocation decision; they devel-
oped a model considering the three strategies of business
continuity plan, supplier fortification, and backup sup-
pliers. In their study, a backup supplier is a supplier
that provides items for the firm with a higher price and
longer lead time in the case of disruption in a primary
supplier. They showed that the backup-supplier strategy
along with other strategies provides a powerful tool for
the firm to respond to disruptions. Kamalahmadi and
Parast (2017) investigated the effectiveness of incorporat-
ing three types pf redundancy practices (pre-positioning
inventory, backup suppliers, and protected suppliers) into
a firm’s supply chain that is exposed to supply and
environmental risks. Using a two-stage mixed-integer
programming model, they considered contracting with
backup suppliers by incorporating a fixed cost for reserv-
ing that supplier that was equal to the cost of building
a warehouse. In this paper, we use an approach simi-
lar to the approach that Kamalahmadi and Parast (2017)
used for incorporating contracting cost. The main advan-
tage of having a backup supplier in all of these studies is
that the firm contracts with a given supplier prior to any
disruptions in primary suppliers. Consequently, when
disruptions happen, the firm is able to shift its demand
to the available backup suppliers.
2.2. Practice of using flexible suppliers (Investment
in flexibility)
Tomlin (2006) states that a contingent response to dis-
ruptions is viable only if suppliers have volume flexibility,
which is the capability to temporarily increase their pro-
duction. Therefore, the manufacturer needs to reserve a
portion of the suppliers’ capacity to respond to increases
in demand due to disruptions. Ruiz-Torres and Mah-
moodi (2006) presented a decision model to optimise the
demand allocation across a set of suppliers by evaluating
different costs associated with a supply network. Their
model takes into account the capability of each supplier to
increase its output in case of disruption in other suppliers.
6 M. KAMALAHMADI ET AL.
Moritz and Pibernik (2008) extended the model devel-
oped by Ruiz-Torres and Mahmoodi (2006) by assuming
different types of compensation mechanisms for suppli-
ers and different purchasing costs, depending on the vol-
ume of the orders. Yang and Qian (2008) advanced previ-
ous models through incorporating compensation mech-
anisms into the decision model, where they incorporate
the capability of suppliers to fulfill the shortfall caused by
other suppliers’ failures. They found the optimal number
of suppliers with their new extensions. Ruiz-Torres, Mah-
moodi, and Zeng (2013) extended the previous models
and considered different demand points and different
suppliers with different costs and reliability character-
istics; the researchers expanded the traditional trans-
portation problem to develop a mathematical model that
considers contingency planning in the decision process.
Later, Kamalahmadi and Parast (2016a) extended Ruiz-
Torres, Mahmoodi, and Zeng (2013) by adding regional
disruptions and the availability of different transporta-
tion channels during disruptions into the model. The
results of these two studies emphasize the effectiveness
of reserving volume flexibility in suppliers’ capacity to
enable available suppliers to deliver more items during
disruptions. These studies on the use of flexible suppli-
ers suggest that the main advantage of reserving flexible
capacity is that without prior investment, firms can still
cope with disruptions.
We contribute to the SCRM literature by develop-
ing a decision-making model that examines the impact
of two common redundancy and flexibility practices on
improving firm responsiveness to supply chain disrup-
tions: backup suppliers and flexible suppliers (volume
flexibility). We choose these two practices because the
respective settings required for developing them are quite
similar; this provides an opportunity to study the rela-
tive value of investment in each of them compared to
the other. We develop a model for a single firm with
a two-tier supply chain and multiple first-tier suppli-
ers with different costs and reliabilities. Our suppliers
are exposed to two types of disruption: supplier disrup-
tion and environmental disruption. A supplier disruption
disrupts a single supplier; an environmental disruption
makes a number of suppliers in the same region unavail-
able. By simultaneously considering the risks of these
two types of disruption, we provide a more realistic sce-
nario that makes a clear distinction between the relia-
bility of a supplier and the reliability of the supplier’s
region. We find that both practices are effective in terms
of improvements in cost reduction and service level;
however, the backup-suppliers practice outperforms the
flexible-suppliers practice for all the performance mea-
sures we consider. We then consider backup suppliers
and flexible suppliers together and show that adding
some level of flexibility to the backup-suppliers practice
(a practice that we call hybrid flexible backup) provides
a higher value for the firm compared to the backup-
suppliers practice alone. To the best of our knowledge,
our study is the first to propose such a hybrid strategy.
3. Model development
To investigate the effectiveness of redundant practices
and flexible practices, we develop a decision-making
model to assess disruption risks using data from a real
organisation. The supply chain that is modeled here is an
extension of the model proposed by Ruiz-Torres, Mah-
moodi, and Zeng (2013). The model presented here is
based on the hybrid flexible-backup practice. In the next
section, when we compare the practices numerically, we
adjust the model for the respective backup practice or
flexibility practice.
The manufacturer (firm) procures a single item in a
single period from a set of h possible suppliers: H =
{1, . . . , h}. All suppliers are first-tier suppliers; therefore,
they provide the same items with different capacities,
costs, and reliabilities. These suppliers may be located in
different regions. We distinguish suppliers of each region
by dividing them into separate sets. H r is defined as the
set of suppliers in region r, R = {1, . . . , r}, where H 1 ∪
H 2 ∪ . . . ∪ H r = H. There is only one demand point, and
the demand is Q per cycle. Q belongs to only one cycle,
and demand is independent across cycles. Failure to sat-
isfy the demand results in a per unit financial loss, M
(no backlogging). Definitions of other parameters and
variables are provided below, as well as in Table 2.
Suppliers’ characteristics: Adding each supplier h to
the supply base has a fixed cost, Fh , which is the manage-
ment cost of working with that supplier (Berger, Gersten-
feld, and Zeng 2004). The maximum capacity for supplier
h, Caph , is defined as the maximum number of items
supplier h can produce per cycle. ch and th are the unit
purchasing and transportation cost for each item ordered
and transported from supplier h, respectively (Table 2). If
the firm decides to select supplier h as a backup supplier,
it incurs some costs regardless of whether a disruption
occurs (Kamalahmadi and Parast 2017). Bh is defined
as the fixed cost of contracting with a backup supplier
h. Furthermore, each supplier has a separate capacity,
ECaph , that restricts the maximum number of emergency
items it can satisfy. With respect to the flexibility policy,
each supplier has a flexibility parameter, dh , which speci-
fies the quantity of additional items that the supplier can
deliver above its normal order allocation, in case of dis-
ruption in other suppliers. (Ruiz-Torres, Mahmoodi, and
Zeng 2013). In other words„ dh is the extra amount of
deliveries that a supplier can provide to their order if any
 INTERNATIONAL JOURNAL OF PRODUCTION RESEARCH 7

Table 2. Decision Variables, Input Parameters, and Associated Types of events: There are two types of events that
Costs. affect suppliers’ operations. The first type is a semi-
Decision variables: super event, which is assumed to be location-specific
Zh A binary variable; 1 if supplier h is in supply base, 0 (Kamalahmadi and Parast 2016a; Sarkar and Mohapa-
otherwise. tra 2009; Sawik 2014). Due to the occurrence of such
Yh A binary variable; 1 if supplier h is selected as a
backup supplier, 0 otherwise. an event, all suppliers in that specific geographical area
ah Number of items allocated to normal supplier h. will be disrupted. The second type is a unique event
qs,h Quantity of items that flow from normal supplier h
in scenario s. that affects an individual supplier and causes disrup-
Eqs,h Quantity of emergency items that flow from tion. Parameters Pr∗ and Ph are assigned to each region
supplier h in scenario s above its base allocation.
vs,h Quantity of emergency items that flow from
and each supplier as the probability of occurrence of
backup supplier h in scenario s. semi-super and unique events, respectively (Table 2).
Us Number of unsatisfied items in scenario s. Disruption parameters: There are s possible scenar-
Input Parameters: ios in the problem, S = {1, . . . , s}, where each scenario is
S Set of scenarios.
R Set of regions. defined by a vector of disruption status of all suppliers
H Set of suppliers. regardless of the source of disruption (regional or sup-
Hr Set of suppliers in region r.
Fh Fixed management cost for supplier h.
plier disruption). In each scenario, when there is a disrup-
Bh Fixed backup contracting cost for supplier h. tion, the supplier(s) and/or the regions(s) can or cannot
Caph Capacity of supplier h. deliver their allocation. Let Sups.h represent the deliver-
ECaph Emergency capacity of supplier h when it is
selected as a backup supplier. ing status for supplier h in scenario s. Thus, Sups,h = 1
ch Purchasing cost of each item from supplier h in for available suppliers in scenario s, and Sups,h = 0 for
normal situation.
gh Purchasing cost of each item from supplier h in disrupted ones. The model considers all of the possible
disruption, when the supplier delivers items scenarios. Each scenario s has a probability of occurrence,
above its base allocation.
th Transportation cost of each item from supplier h.
πs , determined in a three-step process:
dh Supplier flexibility; ability of supplier h to satisfy Step 1: Calculate Psr , the probability of realising a
M
more items than its allocation.
Loss cost for each item.
disruption in suppliers located in region r, h ∈ H r , in
Q Demand of the buying firm. scenario s:
Sups,h Binary parameter related to the status of supplier 
h in scenario s. 1 if the supplier delivers, 0 Psr = [(1 − Sups,h )Ph + Sups,h (1 − Ph )] (1)
otherwise.
Ph Probability of occurrence of unique event in h∈H r
supplier h.
Pr∗ Probability of occurrence of semi-super event in Step 2: Calculate πsr , the probability of realising disrup-
region r. tions in region r and its suppliers,h ∈ H r , in scenario s:
Psr Probability of realising disruptions in suppliers
located in region r, h ∈ Hr , in scenario s. ⎧
πsr ⎪
⎪ (1−Pr∗ )Psr If there is no disruption in region r,
Probability of realising disruptions in region r and ⎨
its suppliers, h ∈ Hr , in scenario s. there is possible disruption in
πs πsr =
Probability of occurrence for scenario s. ⎪
⎪ individual suppliers there
Associated Costs:
⎩ ∗
Pr If there is disruption in region r
SMC Supplier management costs.
BCC Backup contracting costs. (2)
OCs Order cost in scenario s. Step 3: Calculate πs , the probability of occurrence of
TCs Transportation cost in scenario s.
scenario s:
PCs Premium cost in scenario s. 
LCs Loss cost in scenario s.
πs = πsr (3)
Performance Measures: r∈R
ETC Expected total cost
 
SL Expected service level It should also be noted that Psr = 1and Ps∗ +
ELS Expected number of lost sales
S S
(1 − Pr∗ )Psr = 1.
An example of how πs is calculated is shown in
Figure 1. Note that the scenario in which all suppliers in
disruption happens in other suppliers. The firm does not a particular region are disrupted yields results similar to
need to make significant investments to employ a flexibil- the scenario in which a regional disruption in that region
ity strategy; however, each supplier charges a higher unit makes all of the suppliers unavailable. The only difference
purchasing price for each item that it delivers above its between these two scenarios would be their probabilities
base allocation to make up for the failures of other sup- of occurrence. For example, when there is only one sup-
pliers. gh is defined as the unit purchasing cost of each plier in region 1 (Figure 1), although disruption in this
item ordered from supplier h above its base allocation. supplier yields a result similar to regional disruption in
8 M. KAMALAHMADI ET AL.
Figure 1. Decision Tree for Two Regions and One Supplier in Each Region.
region 1, the probabilities of occurrence for these two
scenarios are different. Thus, in order to aggregate iden-
tical scenarios with different probabilities of occurrence
into one, and to avoid redundant scenarios, we divided
the calculation of πsr into two methods in (2). In the first
method, the probabilities of identical scenarios are added
to combine two separate scenarios into one. However, in
the second method, other scenarios are considered.
Variables: Our model has two stages. In the first stage,
the firm selects its suppliers and allocates the demand
among them. The backup-supplier selection or volume-
flexibility decisions are made at this stage as well. Zh and
Yh are two binary variables related to the selection of sup-
plier h either in the supply base (as a flexible supplier)
or in the backup-supplier base (as a backup supplier),
respectively. Variable as represents the normal alloca-
tion of suppliers in the supply base. The aforementioned
variables constitute the first-stage decisions. In the sec-
ond stage, different scenarios take place due to supplier
and/or regional disruptions. Based on the decisions in the
first stage, the manufacturer reallocates the demand in
order to cope with disruptions. Subsequently, the man-
ufacturer incurs costs such as procurement, transporta-
tion, and loss costs. Thus, the second-stage decisions
are conditioned on the first-stage decisions. These vari-
ables are scenario dependent; it means that the values of
these variables may change in each scenario. For exam-
ple, the number of items that flow from each supplier
to the demand point can be changed in each scenario.
Let qs,h be the quantity of items that flow from normal
supplier h in scenario s. vs,h represents the quantity of
emergency items that flow from backup supplier h in
scenario s. Furthermore,Eqs,h , represents the quantity of
emergency items that flow from flexible (normal) sup-
plier h above their base allocation in scenario s. Finally, let
Us be the number of items not delivered to the demand
point in scenario s. A list of the notations and symbols
used throughout the paper is summarised in Table 2.
Associated costs: There are six different costs. All of
the costs are scenario dependent except supplier man-
agement cost (SMC), which is the summation of man-
agement costs of working and collaborating with all sup-
pliers, and backup contracting cost (BCC), which is the
summation of contracting costs with all of the backup
suppliers. OCs is the order cost in scenario s; it is based on
the quantity of items that flow from each supplier in each
scenario as its normal allocation and backup allocation.
TCs is the transportation cost in scenario s; it is based on
the quantity of items that flow from each supplier in that
scenario. (It can be either the quantity of normal items
or the quantity of emergency items.) PCs is the premium
cost in scenario s; it is defined as the costs that the firm
needs to pay to order emergency items from flexible sup-
pliers above their base allocations. LCs is the loss cost for
the firm in scenario s, calculated based on the number of
unsatisfied demand in that scenario. The associated costs
we discussed before are calculated in (4)–(9) as shown
below:

SMC = F h Zh (4)
h∈H

BCC = Bh Yh (5)
h∈H

OCs = ch (ah + vs,h ) (6)
h∈H
 INTERNATIONAL JOURNAL OF PRODUCTION RESEARCH 9


TCs = th (qs,h + vs,h ) (7) quantities that are supplied by available suppliers in dif-
h∈H ferent scenarios. Its values for each scenario would be
 equal to the difference between the quantity that flows
PCs = gh Eqs,h (8) from the supplier in that scenario and the normal alloca-
h∈H tion of that supplier. Constraint (C7) sets an upper bound
LCs = M ∗ Us (9) for the quantity of emergency items that are supplied by
the backup supplier based on its availability and its emer-
The expected total cost in the second stage would be: gency capacity. Constraint (C8) restricts the utilisation of
 emergency items from backup suppliers to the situation
Expected Total Cost = πs (OCs + TCs + PCs + LCs ) where at least one normal supplier is disrupted. There-
s∈S fore, when there is no disruption, there is no need to order
(10) emergency items from backup suppliers. Constraint (C9)
Here is the two-stage mixed-integer programming for determines the value for unsatisfied demand in each sce-
supplier selection and demand allocation, with the objec- nario; this is equivalent to the difference between the
tive of minimising expected total cost. total demand and the summation of quantities that flow
from all suppliers in the supply base and all backup sup-
Minimize SMC + BCC pliers. The last constraint determines the type of each
variable.

S
+ πs (OCs +TCs + PCs +LCs ) (11) The proposed model is a two-stage mixed-integer pro-
s=1 gramming model. In two-stage mixed-integer program-
ming (MIP), the first-stage decisions are determined
Subject to: through incorporating uncertainty of the future out-
 comes. The second-stage decisions are then evaluated
ah = Q (C1) after the potential future outcomes are assessed; thus, the
h∈H second-stage decisions are conditional on the first-stage
ah (1 + dh ) ≤ Zh Caph ∀h ∈ H (C2) decisions (Birge and Louveaux 2011; Rawls and Turn-
quist 2010). In our model, the Zh variables (the selection
Zh + Yh ≤ 1 ∀h ∈ H (C3) of suppliers), the Yh variables (the selection of backup
qs,h ≤ ah (1 + dh )Sups,h ∀s ∈ S&h ∈ H (C4) suppliers), and the ah variables (allocation of suppliers),
are first-stage decisions, which are determined before
qs,h ≥ ah Sups,h ∀s ∈ S&h ∈ H (C5)
there is knowledge of any specific scenario outcome. The
Eqs,h = (qs,h − ah )Sups,h ∀s ∈ S&h ∈ H (C6) objective function in the first stage is minimisation of
vs,h ≤ Yh Sups,h ECaph ∀s ∈ S&h ∈ H (C7) supplier management costs (SMC), backup contracting
  costs (BCC), and expected total cost of ordering, trans-
vs,h ≤ ah (1 − Sups,h ) ∀s ∈ S (C8) portation, premium, and loss costs of supplies over all
h∈H h∈H possible disruptions. The second-stage decisions are the

Us = Q − (qs,h + vs,h ) ∀s ∈ S (C9) qs,h variables (quantity flow from each normal supplier
h∈H
in each scenario), vs,h variables (quantity flow from each
backup supplier in each scenario), Eqs,h variables (quan-
Zh = {0, 1}, Yh = {0, 1}, ah ≥ 0, qs,h ≥ 0, vs,h ≥ 0, tity flow from each supplier above its base allocation
Eqs,h ≥ 0, Us ≥ 0 (C10) in each scenario), and Us variables (quantity of unsat-
isfied items in each scenario). The objective function
Constraint (C1) ensures that the demand will be allo- in the second stage is minimisation of the sum of the
cated to the suppliers. Constraint (C2) defines the capac- scenario-dependent costs including order, transporta-
ity utilisation limit for the flexible supplier as part of the tion, premium, and loss costs, considering the probability
contingency plan to respond to additional orders during of occurrence of each scenario.
disruptions. Constraint (C3) indicates that a supplier can The equivalent deterministic programme of this
be selected either as a flexible supplier or as a backup model is a mixed-integer programme (MIP) where the
supplier. Constraints (C4) and (C5) set an upper bound first–stage and second-stage decisions are integrated,
and a lower bound for the quantities that flow from each and the model is being solved in the extensive form.
normal supplier in each scenario based on the supplier’s The solution to the relatively small problems can be
allocation, flexibility rate, and its availability in that sce- determined by creating the equivalent deterministic MIP
nario. Constraint (C6) determines the values of extra model. This can be accomplished with commercial MIP
10 M. KAMALAHMADI ET AL.

software (Qin, Liu, and Tang 2013; Rawls and Turn- 4.1. Computational study
quist 2010). In this study, CPLEX 12.6 was used for
4.1.1. Case study
solving MIP problems. Our model first calculates the
We used the data provided by Ruiz-Torres, Mahmoodi,
probability of occurrence for each scenario utilising the
and Zeng (2013) and Kamalahmadi and Parast (2016a).
3-step algorithm explained. Next, the two-stage mixed-
This data is based on the observation of a manufacturer
integer programming provides the optimal solution for
of appliances. We assume three regions exist: H 1 , H 2 ,
the selection of flexible suppliers, backup suppliers, and
and H 3 . In each region, there are two suppliers with
the demand allocation among them, in order to minimise
different characteristics: H 1 = {1, 2}, H 2 = {3, 4}, H 3 =
the expected total network costs. In addition, the contin-
{5, 6}. In both normal and disruption situations, suppli-
gency plans for each scenario are included in the opti-
ers in region 3 have the lowest order price for items,
mal solution. In the next section, we conduct numerical
the largest production capacity, and the highest flexi-
analyses to evaluate the impact of each of the three prac-
bility rates. However, they are least reliable, and their
tices (using backup suppliers, using flexible suppliers, and
geographic distance from the firm gives them the highest
using a hybrid of both) on improving firm responsiveness
transportation rates. In addition, the probability of fail-
to disruptions.
ure due to the occurrence of a semi-super event is higher
for suppliers in region 3, due to geographical dispersion
and distance. The fixed backup contracting cost would
4. Numerical analysis be the same for all suppliers, and it would be five times
as much as the fixed management cost of suppliers. The
In Section 4.1, we show the application of our model
emergency capacity of each supplier is also assumed to be
using data from a company, which we call a case study.
equal to the maximum flexible capacity of that supplier
We show the relative effectiveness of each practice for the
(ECaph = Caph ∗ dh ). Suppliers’ information and char-
firm. In Section 4.1.2, to generalise the findings of the case
acteristics are shown in Table 3. In Section 4.3, we run a
study in Section 4.1.1 and to provide more insight, we run
number of sensitivity analyses to show that the results do
a number of simulations to focus on the core issue of flex-
not stem particularly from the choice of parameter val-
ibility vs. redundancy. In Section 4.2, we run a number
ues. The values for demand and loss cost are assumed to
of sensitivity analyses, where we start with the data used
be 4000 items and $400 per item, respectively.
in Section 4.1 and select different individual parameters
Practice 1. No Backup, No Flexibility
to vary, to show each parameter’s influence on the out-
First, consider the practice with no backup and no
come. Then we discuss the underlying factors that affect
flexibility. In this case, there is no delivery during disrup-
the optimal choice of flexible and backup suppliers. In all
tion, and there is no pre-disruption investment. The opti-
three sections, we use the following measures to compare
mal solution is the allocation of 1000 items to supplier 1,
the effectiveness of these strategies: 1) expected total cost
1500 items to supplier 2, and 1500 items to supplier 3.
(ETC); 2) expected service level (SL), defined as the prob-
(So 2500 items are allocated to region 1 and 1500 items
ability of zero loss to the manufacturer (Meena, Sarmah,
to region 2.) This result indicates that if the focal firm is
and Sarkar 2011); and 3) expected number of lost sales
not interested in implementing any responsive strategies
(ELS).

Table 3. Suppliers’ Information.

Regions Region 1 Region 2 Region 3
Pr∗ :Semi-super event probability 0.5% 1% 2%
Suppliers S1 S2 S3 S4 S5 S6
Caph : Capacity (items) 1000 1500 2000 2500 3000 3500
ECaph :Emergency Capacity (items) 300 600 1000 1500 2100 2800
dh :Supplier flexibility 30% 40% 50% 60% 70% 80%
ch : Normal purchasing cost ($/item) 25 22 20 15 12 10
gh : Disruption purchasing cost 35 32 30 25 22 20
($/item) 5 6 7 8 9 10
th :Transportation cost ($/item) 1% 2% 4% 6% 8% 10%
Ph :Supplier failure probability 1000 1000 1000 1000 1000 1000
Fh :Fixed management cost ($) 5000 5000 5000 5000 5000 5000
Bh :Fixed backup contracting cost ($)

Table 4. Suppliers’ and Regions’ Allocations in the Flexibility
Setting.
Region 1 Region 2 Region 3
Regions’ Allocations 1525 1250 1225
Suppliers’ Allocations S1 S2 S3 S4 S5
760 765 580 670 630
for mitigating disruption, then in the selection of sup-
pliers, reliability factors outweigh cost factors. As we see,
expensive but reliable suppliers are selected in the supply
base; less expensive and less reliable suppliers, which are
mainly located in the third region, are not selected. For a
practice with no backup and no flexibility, the expected
total cost is $162, 640.80, the expected service level is
91.7%, and the expected lost sales is 127.4 units.
Practice 2. Only Flexibility
When all of the contingency characteristics related to
volume flexibility are added to the problem, the optimal
solution is a selection of all suppliers in the supply base.
The allocation for each supplier and consequently each
region is shown in Table 4.
Figure 2 presents the optimal demand allocation (nor-
mal allocation) of the suppliers in normal conditions
and their maximum output in disruptions (i.e. the quan-
tity that flows from each supplier changes in the ranges
shown in Figure 2 in different scenarios). The result indi-
cates that if the focal firm decides to design a practice with
volume flexibility in suppliers, there is a balance between
reliability, flexibility, and costs. In normal conditions, the
reliability factor determines the allocation of suppliers;
highly reliable suppliers receive more demand allocation.
In disruptions, cost factors and flexibility rates determine
the allocation of suppliers. As Figure 2 shows, the maxi-
mum output for all suppliers is fairly equal (except sup-
plier 3, which has the minimum allocation). This means
that the range of flexible allocation is wider for suppliers
in the third region in comparison with suppliers in the
first and second regions. In other words, higher flexibil-
ity leads to lower normal allocation and higher utilisation
in disruptions. The expected total cost for this model is
Figure 2. Optimal Allocation and Maximum Output in the Flexibility Practice.
INTERNATIONAL JOURNAL OF PRODUCTION RESEARCH 11
Table 5. Suppliers’ and Regions’ Allocations in the Backup
Setting.
Region 1 Region 2 Region 3
Regions’ Allocations 1500 - 2500
S6 Suppliers’ Allocations S1 S2 S3 S4 S5 S6
595 - 1500 1000 1500 2100 2500
$111, 468. This is a 31.5% reduction in expected total cost
compared to the first practice, which has no backup and
no flexibility. The result shows that by creating a region-
alised supply base, the set of suppliers in the second plan
would be able to meet the requirement in all scenarios
when there is a single or double supplier failure or a sin-
gle regional disruption; however, when more than one
region fails or more than two suppliers fail, some part
of the demand will remain unsatisfied at the end of the
cycle. The findings show that the service level (success
rate in mitigating supply disruption) is 99%. This is much
higher than the 91.7% service level in the first practice.
Furthermore, the expected lost sales was reduced from
127.4 units in the first practice to 8.1 units in the flexibility
practice, a 93.7% reduction.
Practice 3. Only Backup
When all of the redundancy characteristics related to
backup suppliers are added to the model, the optimal
solution is the selection of two suppliers (S2 and S6) in
the supply base and three suppliers as backup suppliers
(S3, S4, and S5). Table 5 shows the result, where backup
suppliers are highlighted in gray.
The result indicates that with this practice, expensive
supplier 1 was dropped from the supply base. The num-
ber of primary suppliers was reduced to two. Supplier 6,
the least reliable and least expensive supplier, was selected
along with supplier 2, a reliable and expensive supplier.
With this selection, the reliability and cost is balanced in
the supply base. Then, we have three backup suppliers. It
suggests that the optimal solution is to keep fewer sup-
pliers in the supply base with higher allocations to each
(compared to the previous two runs), while pre-investing
to contract with two or more backup suppliers to ensure
12 M. KAMALAHMADI ET AL.
Table 6. Suppliers’ and Regions’ Allocations in the Hybrid Prac-
tice.
Region 1 Region 2 Region 3
Regions
Allocations 1071 1539 1390
Suppliers S1 S2 S3 S4 S5
Allocations - 1071 1000 1539 2100
Maximum output - 1499 1000 2462 2100
that the flow of goods does not stop when primary sup-
pliers are disrupted. The reason that three suppliers were
selected as backups is that in our model, backup suppli-
ers are also exposed to supplier and regional disruptions.
Our model then considers all of the combinations of
failures in primary and backup suppliers, and suggests
contingency plans for each scenario. In the current result,
supplier 5 is in the priority to be used in disruptions,
because of its low prices. However, in case the emergency
capacity of this supplier is not sufficient or this supplier
is unavailable due to a disruption, suppliers 4 and 3 will
be used to make up for the failure of primary suppliers.
The expected total cost is $111, 483.50 for the backup
practice. This is a 31.5% reduction in expected total cost
compared to the first practice, which has no backup and
no flexibility. The result shows that by creating a region-
alised supply base with primary and backup suppliers, the
set of suppliers in this plan would be able to meet the
requirement in all scenarios except when more than one
of the backup suppliers is disrupted simultaneously with
one of the primary suppliers in the supply base. The find-
ings show that the expected service level is 99.5%. This is
much higher than the 91.7% service level in the first prac-
tice. The expected lost sales was reduced from 127.4 units
in the first practice to 5.9 units in the backup practice, a
95.4% reduction.
Practice 4. Hybrid Practice with Backup and Flexibility
Here, all of the characteristics related to flexible and
backup suppliers are added to the model. The optimal
solution is the selection of three primary flexible suppli-
ers (S2, S4, and S6) and two backup suppliers (S3 and
S5). Table 6 shows the result, where backup suppliers are
highlighted in gray.
The result indicates that the set of suppliers selected
for Practice 4 is similar to the set for Practice 3 (which
has only backup suppliers), except that when volume flex-
ibility was allowed in Practice 4, supplier S4 was switched
from the backup supplier base to the primary flexible sup-
pliers. The allocations of S2 and S6 were lowered and a
part of their capacity was reserved for disruptions. The
emergency allocations of suppliers S3 and S5 did not
change. We observe that the least expensive supplier in
each region was selected as a primary supplier. On the
other hand, reliable suppliers of each region (except sup-
plier 1) were selected as backup suppliers. Disruptions
are unavoidable; therefore, the optimal solution ensures
that when disruption occurs in primary suppliers, reliable
backup suppliers are available to prevent interruption
S6 in the flow of goods. The number of backup suppliers
1390 was reduced from 3 in the backup practice to 2 in the
2502
hybrid practice, which in turn reduces the pre-disruption
investment costs.
The hybrid practice with both flexible and backup
resources addressed shortcomings of the previous polices.
In the flexibility practice, since the flexible capacity of
suppliers was limited, they would not be able to meet
manufacturer demand when more than two suppliers (or
one region) were disrupted simultaneously. In the backup
practice, when backup suppliers were not able to make
up the failure of one of the primary suppliers, the other
primary supplier did not have the ability to increase its
output, as its capacity was already fully assigned to sat-
isfy the manufacturer’s order. However, in this hybrid
practice, the combination of backup and flexible sup-
pliers enables the manufacturer to increase its expected
service level with a lower pre-disruption investment. In
case of a disruption in a primary supplier, the manufac-
turer would check with backup suppliers. If they were
available and could completely make up for the failure
of primary suppliers, their emergency allocations would
be used. However, if backup suppliers were not available
or did not have sufficient capacity, the flexible capacity
of available primary suppliers would be used to cover
the failure of other suppliers. The expected total cost for
this practice is $107, 944.5. This is about a 34% reduc-
tion in expected total cost compared to the first practice
with no disruption plans and a 3% reduction compared
to the second and third practices with only flexibility or
backup. The result shows that by creating a regionalised
supply base with flexible and backup suppliers, the set of
suppliers in this plan would be able to meet the require-
ments of the manufacturer in all scenarios except in the
rare event of simultaneous disruptions in more than three
suppliers. The findings show that the expected service
level is 99.6%. This is much higher than the 91.7% service
level when there was no plan for disruptions. Further-
more, the expected lost sales was reduced from 127.42 in
the first practice to 4.32 in the hybrid practice, a 96.7%
reduction.
The summary results for the expected total cost,
expected service level, and expected lost sales for all
four practices are shown in Figure 3. It is shown how
the hybrid practice outperforms all other practices in all
three measures of interest.
In the following section, we develop a simulation
model in a number of different settings, to see if the

Figure 3. Results of the Computational Study.
results obtained in this example are robust and can be
generalised.
4.1.2. Stochastic measures
Two important aspects of formulating and processing
stochastic programming (SP) problems are to obtain
stochastic information regarding the family of models
and to compare the related bounds (Valente et al. 2009).
The expected value of perfect information (EVPI) and the
value of stochastic solution (VSS) are the motivation for
using SP methods (Nazemi, Parragh, and Gutjahr 2020).
Assuming that it is possible to indicate beforehand which
scenario will occur, it will be possible to make a decision
according to that specific scenario and obtain the opti-
mal solution for that particular scenario. This situation in
SP is called a ‘perfect information’ situation, and the cor-
responding solution is called a ‘wait-and-see’ (WS) solu-
tion. The difference between the solutions of SP and WS
is called EVPI. EVPI shows the loss of profits caused by
not being completely ready to cope with disruption. On
the other hand, instead of spending time to develop an SP
model, a deterministic model based on the mean value
of the parameters in each scenario can be used in order
to obtain the solutions that are called ‘expected value’
(EV) solutions. This method can lead to high costs or
adverse consequences in optimising the solutions. There-
fore, the loss incurred by ignoring stochastic parameters,
which is called VSS, is equal to the difference between the
expected performance of the EV solution (i.e. EEV) and
the solution of SP. VSS and EVPI can also be shown as
follows (Khalilabadi, Zegordi, and Nikbakhsh 2020):
VSS = ZEEV − ZSP (12)
EVPI = ZSP − ZWS (13)
Table 7. EVPI and VSS metrics for the case study.
Practice SP ($) EEV ($)
No Backup/ No Flexibility 162,640 165,160
Only Flexibility 111,468 114,667
Only Backup 111,483 114,994
Backup and Flexibility 107,944 112,585
INTERNATIONAL JOURNAL OF PRODUCTION RESEARCH 13
Table 7 shows the VSS and EVPI metrics for the case
study. The VSS metrics are significant, ranging from
1.55% to 4.3% based on each practice. Therefore, the
effort to create and solve the stochastic model in this
problem (rather than a deterministic problem) can con-
siderably decrease the company’s expected total cost. In
addition, the EVPI metrics are also significant, ranging
from 2.58% to 8.55% based on each practice. Therefore,
better forecasting and efforts to gain more information
about the future and more control over stochastic param-
eters can considerably decrease the company’s expected
total cost.
4.1.3. Simulations
The goals of this section are to generalise the findings of
the last section into a broader setting and also to delve
deeper into the core issue of flexibility vs. redundancy.
We run a number of simulations in different settings to
provide insight into the performance when using only
flexible suppliers, only backup suppliers, and the hybrid
model.
We set our parameters to get values randomly from
some known distributions. The first case considers a sim-
ple structure for the supply chain, with a manufacturer
and two suppliers: a reliable but expensive supplier from
a reliable region, and an unreliable but inexpensive sup-
plier (with higher capacity) from an unreliable region.
We define the values for the parameters in a way that we
provide a trade-off between risks (reliability) and costs
in the choice between the two suppliers. The values for
the parameters were drawn randomly from uniform dis-
tributions as shown in Table 8. Demand is fixed at 8000
items, loss costs are fixed at $400 per unit, and fixed man-
agement cost per supplier is fixed at $1000. The values
for fixed backup contracting cost and flexibility rate are
WS ($) VSS ($) EVPI ($) VSS (%) EVPI (%)
148,734 2,520 13,905 1.55 8.55
106,730 3,199 4,737 2.87 4.25
107,045 3,511 4,437 3.15 3.98
105,159 4,641 2,784 4.30 2.58
14 M. KAMALAHMADI ET AL.

Table 8. Regions’ and Suppliers’ Characteristics – Simulation As shown in Figure 4, the flexibility and backup prac-
with 2 Suppliers. tices both reduce the expected total cost in almost all
Parameters Region 1 Region 2 trials; the backup practice is more effective, producing the
Pr∗ :Semi-super lowest ETC in 28 of the 30 trials. Furthermore, although
event probability ∼ U[0,0.05] ∼ U[0.05,0.1]
the expected service level (probability of zero loss) is
Suppliers Supplier 1 Supplier 2
Ph :Supplier failure ∼ U[0,0.05] ∼ U[0.05,0.2] constant across all three practices, the expected number
probability ∼ U[8000,12000] ∼ U[10000,15000] of lost sales has been lowered significantly using either
Caph : Capacity (items) ∼ U[4000,6000] ∼ U[5000,7500]
ECaph :Emergency capacity ∼ U[20,30] ∼ U[10,20] backup or flexibility, with the backup practice being more
(items) ∼ U[30,40] ∼ U[20,30] effective than the flexibility practice. The results of the
ch : Normal purchasing ∼ U[5,10] ∼ U[10,15]
cost ($/item) ∼ U[5000,10000] ∼ U[5000,10000]
two-sample t-test for the means of ETC and ELS con-
gh : Disruption purchasing ∼ U[0,1] ∼ U[0,1] firm that the mean expected total cost and mean expected
cost ($/item) lost sales are lower for the backup-suppliers practice com-
th :Transportation cost
($/item) pared to the flexible-suppliers practice and having no
Bh :Fixed backup SCRM plan (p < .01). Furthermore, the mean ETC and
contracting cost ($)
dh :Supplier flexibility mean ELS are lower for the flexibility practice compared
to having no SCRM plan (p < .01).
In Figure 4, we see only minor improvements in terms
drawn from the same distributions for both suppliers to of both ETC and ELS in trials 12, 24, 25, and 30. On the
see how the model picks suppliers based on the other cost other hand, significant improvement is observed in tri-
and risk parameters. Backup contracting cost per supplier als 13 and 14. To see why, let’s look at the reliability of
is 5–10 times the management cost per supplier. The sup- region 1 and supplier 1 in these trials. In trials 12, 24, 25,
plier flexibility parameter is drawn uniformly from the and 30, the disruption probability of supplier 1 and region
range of [0,1]. Table 8 shows how each of the parameters 1 is less than 1% ((1 − P1∗ )(1 − P1 ) = 0.99). In trials 12
is assigned values. and 13, (1 − P1∗ )(1 − P1 ) = 0.9; i.e. there is a 10% chance
We ran 30 trials generating data as explained in of losing supplier 1 due to regional or supplier disrup-
Table 8. The results for expected total cost and expected tion. This result indicates that when there exists a reliable
lost sales for each trial under each practice are shown in supplier and region, it may not be worthwhile switch-
Figure 4 (see the Appendix for the detailed results). Note ing to flexibility or redundancy practices. However, when
that a hybrid flexible-backup practice is not applicable to uncertainty is high, firms can achieve a lot by pursuing
this case with only two suppliers. Also, all three practices either flexibility or redundancy practices.
yield the same expected service level, so that is not shown Table 9 shows the VSS and EVPI metrics for the first
in Figure 4. simulation of 30 trials. The VSS metrics are significant,

Figure 4. ETC and ELS Comparison for the Three Practices in Each of 30 Trials.

Table 9. Average EVPI and VSS metrics for the first simulation of 30 trials.
Practice SP ($) EEV ($)
No Backup/ No Flexibility 410,287 421816.1
Only Flexibility 360,510 369126.2
Only Backup 308,481 317642.9
ranging from 2.39% to 2.97% based on each practice. In
addition, the EVPI metrics are also significant, ranging
from 4.08% to 7.63% based on each practice.
Our findings provide evidence that supports the role
of reliability as the key factor in determining which sup-
plier should be selected as primary supplier. (Recall that
supplier 1 is more reliable, more expensive, and located in
a more reliable region compared to supplier 2.) Supplier
1 is the sole supplier when there is no flexibility prac-
tice and no backup practice, and supplier 1 is the primary
supplier when the backup practice is used (even though
the backup contracting cost was lower for supplier 1 in
18 out of 30 trials). When the flexibility practice is used,
both suppliers are chosen; supplier 1 gets the majority
of the allocation, as shown in Figure 5. In Figure 5, the
suppliers’ allocations and the value of supplier 1’s flex-
ibility rate in each trial are shown. Even though other
factors (such as disruption probabilities) are also con-
tributing to the changes in allocations, there is a strong
negative correlation (−0.98) between supplier 1’s alloca-
tion and its flexibility rate. When supplier 1’s flexibility
is higher, less demand allocation goes to this supplier,
and a larger portion of supplier 1’s capacity is reserved
for use during disruptions. This makes the supply chain
more responsive during disruptions by providing a larger
available capacity and thus reducing the loss of sales.
Consequently, this leads to a reduction in the expected
total cost.
Now, in order to analyze the hybrid practice, we extend
the analyses to the case of two regions, with two suppli-
ers in each region. Again, we assume suppliers in the first
region (the more reliable region) are more reliable, more
expensive, and have lower capacities compared to region
2 suppliers. Backup contracting costs and flexibility rates
are drawn from the same distributions for all suppliers.
Figure 5. Suppliers’ Allocation and Supplier 1’s Flexibility Rate Changes in Flexibility Practice.
INTERNATIONAL JOURNAL OF PRODUCTION RESEARCH 15
WS ($) VSS ($) EVPI ($) VSS (%) EVPI (%)
378,982.1 11,529.06 31,304.9 2.81 7.63
342,700.8 8,616.189 17,809.19 2.39 4.94
295,895 9,161.886 12,586.02 2.97 4.08
Table 10 shows the distributions used to set the values
of parameters. Demand, loss cost per item, and supplier
management cost per supplier are again fixed at 8000
items, $400 per item, and $1000 per supplier, respectively.
We ran 30 trials generating data as explained in
Table 10. The results for expected total cost, expected ser-
vice level, and expected lost sales for all four practices are
shown in Figure 6. (Note that in expected service level
and expected lost sales figures, the hybrid and redun-
dancy practices have a very similar pattern.) Please see
the Appendix for the detailed results.
The results for expected total cost and expected lost
sales are consistent with the results of the previous anal-
ysis. Here again, the flexible-suppliers practice and the
backup-suppliers practice lead to lower mean expected
total cost and lower mean expected lost sales (p < .01),
with the backup-suppliers practice outperforming the
flexible-suppliers practice (p < .01). However, a compar-
ison of service levels provides new insights. We see that
the backup-suppliers practice improved the mean service
level (p < .01). On the other hand, even though the mean
SL is lower in the flexible-suppliers practice compared
to the base practice, this result is not statistically signif-
icant (p > .10). Nevertheless, the last graph shows that
mean expected lost sales was reduced with the flexible-
suppliers practice (p < .01). Next, when we incorporate a
hybrid flexible-backup-suppliers practice in our analysis,
we see that it can provide the same expected SL and ELS as
the backup-suppliers practice, with some improvements
in the mean ETC (95% confidence interval for the dif-
ference between means: [1407.68, 5760.52]). To further
analyze why the expected total cost is lower in the hybrid
practice, we present the pre-disruption investment costs
as a percentage of the overall expected total cost for the
hybrid and backup practices in Figure 7.
16 M. KAMALAHMADI ET AL.

Table 10. Regions’ and Suppliers’ Characteristics – Simulation with 4 Suppliers.

Parameters Region 1 Region 2
Pr∗ :Semi-super event probability ∼ U[0,0.05] ∼ U[0.05,0.1]
Suppliers Supplier 1 Supplier 2 Supplier 3 Supplier 4
Ph :Supplier failure probability ∼ U[0,0.05] ∼ U[0.05,0.10] ∼ U[0.05,0.10] ∼ U[0.05,0.2]
Caph : Capacity (items) ∼ U[8000,12000] ∼ U[8000,12000] ∼ U[10000,15000] ∼ U[10000,15000]
ECaph :Emergency capacity (items) ∼ U[4000,6000] ∼ U[4000,6000] ∼ U[5000,7500] ∼ U[5000,7500]
ch : Normal purchasing cost ($/item) ∼ U[20,30] ∼ U[17,27] ∼ U[14,24] ∼ U[10,20]
gh : Disruption purchasing cost ($/item) ∼ U[30,40] ∼ U[27,37] ∼ U[24,34] ∼ U[20,30]
th :Transportation cost ($/item) ∼ U[5,10] ∼ U[7,12] ∼ U[8,13] ∼ U[10,15]
Bh :Fixed backup contracting cost ($) ∼ U[5000,10000] ∼ U[5000,10000] ∼ U[5000,10000] ∼ U[5000,10000]
dh :Supplier flexibility ∼ U[0,1] ∼ U[0,1] ∼ U[0,1] ∼ U[0,1]

Figure 6. ETC, SL, and ELS Comparison for the Four Practices in Each Trial.

In the backup practice, the model often chooses
one primary and three backup suppliers. The choice of
primary supplier changes in each trial, based on the value
of backup contracting costs and other parameters.
In the hybrid model though, when we allow for some
level of flexibility, the model chooses two flexible primary
suppliers and two backup suppliers in most of the cases.
That is why the pre-disruption investment is lower in the
hybrid model (p < .01).
The mean pre-disruption investment percentage is
6.98% in the hybrid model and 8.62% in the backup
model. As we see in Figure 7, having two flexible and
two backup suppliers outperforms one primary and three
backup suppliers in terms of pre-disruption investment.
 INTERNATIONAL JOURNAL OF PRODUCTION RESEARCH 17

Figure 7. Pre-Disruption Investment in Redundancy (Backup Contracting) as a Percentage of Expected Total Cost, for the Hybrid and
Backup Practices.

Basically, a portion of that pre-disruption investment
in contracting with a third backup supplier is used for
post-disruption investment in paying extra dollars per
unit that flexible suppliers satisfy above their base allo-
cation, and the other portion has been saved. The hybrid
model may be more interesting for managers, to avoid a
tendency to overlook the effectiveness of investment in
redundancy for potential low-likelihood events (Chopra
and Sodhi 2014).
Analyzing the detailed results of each practice, sup-
plier 1 is again chosen as the sole supplier for the case
with no flexibility and no redundancy. In the flexibility
practice, 3 or 4 suppliers are chosen in different trials,
where more flexibility in suppliers leads to an increase
in the number of suppliers and a more even distribution
of demand across them. Also, region 1 suppliers (reli-
able region and suppliers) receive most of the demand
allocation. Finally, in the hybrid model, two primary flex-
ible suppliers and two backup suppliers were chosen in
a way that reliability is balanced between the primary
supply base and backup supply base (one reliable and one
unreliable supplier in each base).
Table 11 shows the VSS and EVPI metrics for the
case study. VSS metrics are significant, ranging from
2.25% to 5.51% based on each practice. The EVPI met-
rics are also significant, ranging from 3.08% to 7.87%
based on each practice. Therefore, the efforts to create
and solve the stochastic model as well as the efforts to
gain more information about the future and more con-
trol over stochastic parameters can considerably decrease
the company’s expected total cost. Thus, a proportion of
EVPI can be offered to retailers as an incentive to encour-
age them to announce their exact quantity for the next
period.
The analysis of this section reinforces the findings of
our computational study:
1) Even though new costs are involved when it comes to
investment in flexibility and redundancy, the overall
benefits of this investment outweigh the costs when
all possible states of nature are considered. Benefits
include reduction in expected total cost, reduction
in expected lost sales, and improvement in expected
service level.
2) The backup practice is a more effective strategy
compared to volume flexibility, but it involves pre-
investment in redundant resources. Therefore, a
backup practice is more appropriate for a risk-averse
firm, and a flexibility practice can be an alternative
for a firm that avoids pre-investment in redundant
resources.
3) The hybrid model outperforms the backup strategy
by achieving the same expected service level and
expected lost sales with a lower expected total cost
and lower pre-disruption investment. The hybrid
model shows that a combination of volume flexibil-
ity and backup suppliers is superior to an investment
in only one of them, from both a risk and a cost
standpoint.
Finally, we would like to summarise the key observa-
tion with regard to the supplier selection and demand
allocation of each practice. It turned out that reliability
is playing the major role in determining which suppli-
ers should be selected in either the primary or backup
supply base. We observed that with no SCRM practice in
place, the most reliable supplier was chosen, as the firm
tries to minimise the cost and maximize the service level.

Table 11. Average EVPI and VSS metrics for the second simulation of 30 trials.
Practice SP ($) EEV ($) WS ($) VSS ($) EVPI ($) VSS (%) EVPI (%)
No Backup/ No Flexibility 402,980 412,047 371,265 9,067 31,714 2.25 7.87
Only Flexibility 345,980 359,369 332,348 13,389 13,632 3.87 3.94
Only Backup 250,572 262,299 241,576 11,727 8,996 4.68 3.59
Backup and Flexibility 243,476 256,891 235,977 13,416 7,499 5.51 3.08
18 M. KAMALAHMADI ET AL.
To design a flexibility practice, the more flexibility that
suppliers could insert in their capacity, the more even
the firm’s distribution of demand would be, with a conse-
quent reduction in the expected total costs and expected
lost sales. Reliable suppliers would still get more demand
compared to less reliable suppliers. To design an effec-
tive redundancy practice, having a strong backup supply
base seems to be more important than a strong pri-
mary supply base. With multiple suppliers in the backup
supply base, the firm can ensure that the flow of mate-
rial will not stop when primary suppliers and one of
the backup suppliers are unavailable. Finally, an effec-
tive hybrid practice is achieved when a balance between
costs and reliability is made in each supply base. The
firm can do that by choosing both reliable and unreli-
able (but inexpensive) suppliers in each of the supply
bases.
In the following section, we run a number of sensitiv-
ity analyses to study the effects of each of the parameters
of our model on the optimal choice of suppliers and
allocation of demand for the computational study we
presented in the last section.
4.2. Sensitivity analyses
Since the results of supplier selection and order allo-
cation are highly dependent on the parameters of our
model, and to obtain a more nuanced understanding of
the disruption models, we conduct a number of sensitiv-
ity analyses to examine the performance of the model and
the solutions regarding these decisions in different set-
tings. All sensitivity analyses are conducted in the setting
of our computational study.
4.2.1. Sensitivity analysis of the reliability of suppliers
In order to analyze the effect of changes in the relia-
bility of suppliers on the final solution, we consider the
availability of one highly reliable supplier. For this pur-
pose, we put the disruption probability of each of the
suppliers equal to zero, once at a time. The result of the
optimal allocation of suppliers in each setting is shown
in Figure 8; the allocation of primary flexible suppliers is
shown in black, and the allocation of backup suppliers is
shown in gray.
Recall that in the computational study example, the
first three suppliers are reliable but expensive, and the
second three suppliers offer cheaper prices with less reli-
ability. Now the results of the first three experiments,
where we set the respective disruption probability of sup-
pliers S1, S2, and S3 equal to zero, have some similarities.
The only difference is the first experiment, where sup-
plier S1’s reliability outweighs its expensive prices, and it
is selected in the supply base even though it is an expen-
sive one. In all of the first three experiments, the model
has made a balance between risks and costs in the supply
base by selecting reliable suppliers in the first region and
cheap suppliers in the third region as the primary suppli-
ers, and selecting mid-reliable mid-expensive suppliers in
the second region (S3 and S4) as backup suppliers. Alter-
natively, in each of the second three experiments (when
S4, S5, and S6 are respectively set to perfectly reliable),
there is a supplier that has characteristics of both relia-
bility and cheap prices. Therefore, this supplier receives
a great portion of the demand. Consequently, the relia-
bility of the supply base was increased and the number
of backup suppliers was reduced to one. To minimise the
impact of regional disruptions, in each scenario at least
one supplier from each region is selected in the supply
base.
4.2.2. Sensitivity analysis of the reliability of regions
In contrast to the previous sensitivity analysis, we assume
that one of the regions is highly volatile and unreliable.
For each of the three regions, we ran a simulation where
we set the disruption probability of that region to 10%.
The optimal allocations resulting from the three simula-
tions are shown in Figure 9. In each set, the allocations
of primary flexible suppliers are shown in black, and
emergency allocations of backup suppliers are shown in
gray.
Based on Figure 9, in all three experiments, two
backup suppliers are selected. In the first case, when the
first region is highly unreliable, supplier S1 is removed,
and supplier S6 (very inexpensive) is selected as backup
supplier using its full emergency capacity utilisation. In
the second case, when the second region is highly unre-
liable, suppliers in this region are selected as backup
suppliers to avoid the reduction in the reliability of the
supply base. Suppliers in the other regions are selected as
primary flexible suppliers in the supply base. In the last
scenario, when the third region’s reliability is low, sup-
plier S5 is selected as backup supplier from this region.
We should keep in mind that supplier S6’s low prices still
keep this supplier in the supply base. Supplier 1, which
was dropped in the first case, is back in the second and
third scenarios to increase the reliability of the supply
base.
4.2.3. Sensitivity analysis of the flexibility and
emergency capacity of suppliers
In this section, the flexibility rate and emergency capac-
ity of suppliers are analyzed to see how changes in these
parameters can change the final solutions. For the pur-
pose of analysis of flexibility rate, supplier S6 was selected,
as it has the highest flexibility and the least expensive
 INTERNATIONAL JOURNAL OF PRODUCTION RESEARCH 19

Figure 8. Optimal Allocations of Primary Suppliers (black) and Backup Suppliers (gray) with One Reliable Supplier.

Figure 9. Optimal Allocations of Primary Suppliers (black) and Backup Suppliers (gray) with One Unreliable Region.

prices according to the case study example. The result of
the analysis is shown in Figure 10, where the black colour
represents the allocation of primary suppliers and gray
colour represents the emergency allocation of backup
suppliers.
Based on Figure 10, when the flexibility rate of supplier
S6 is more than 0.5, suggesting that the supplier is able to
increase its output to more than 1.5 of its base allocation,
this supplier is selected as a flexible supplier. However,
when its flexibility capability drops, it is removed from
the primary supply base, and it is selected as a backup
supplier due to its cheap prices.
Next, we choose supplier S3 to analyze how changes
in its emergency capacity affect the final solutions. This
supplier is selected for this analysis as it is mainly selected
as a backup supplier in most of the previous analyses. The
result is shown in Figure 12.
The result in Figure 12 indicates that when the emer-
gency capacity of supplier S3 is low, it is not selected,
either as a backup supplier or as a primary one. However,
when this supplier is able to deliver a great number of
items in disruptions, it would be selected as a backup sup-
plier. We see that the set of suppliers and their allocations
were totally changed in this case.
20 M. KAMALAHMADI ET AL.
Figure 10. Optimal Allocations of Primary Suppliers (black) and Backup Suppliers (gray) with One Flexible/Inflexible Supplier.
4.2.4. Sensitivity analysis of the fixed backup
contracting cost of suppliers
The result of this analysis is shown in Table 12. As
expected, when the pre-disruption investment in con-
tracting with backup suppliers is substantial, this invest-
ment cannot be justified. Therefore, the number of
backup suppliers drops as this cost increases.
4.2.5. Sensitivity analysis of the fixed loss cost
Finally, we examine how the fixed loss cost of each item
affects the final selection and allocation of flexible pri-
mary and backup suppliers. For the purpose of analysis
of this section, we change the value of fixed loss cost per
item from $0 to a large number when losing one item can
cause a huge loss of money for the firm. The results are
shown in Figure 11 in four sets.
The results shown in Figure 11 indicate that when
there is no charge for lost sales, the three least expensive
suppliers are selected with no flexibility or redundancy.
When the fixed loss cost is a small number, three flexi-
ble suppliers and one backup supplier are selected. When
fixed loss cost grows, another backup supplier is added.
However, when losing a single sale is seen as a disaster
for the firm, the firm should use all of its capabilities to
prevent the occurrence of lost sales. In this case, four flex-
ible and two backup suppliers are selected to minimise
the cost of lost sales and maximize the service level.
5. Discussion
This study provides several contributions to the the-
ory and practice of supply chain risk management and
resiliency that are discussed in the following sections.
Table 12. Changes in Backup Suppliers Based on Fixed Backup
Contracting Cost.
Fixed backup contracting cost Number of backup suppliers
$1000 3 values of the volume-flexibility practice and the backup-
$5000 2
$10000 1 suppliers practice, showing that both practices are valu-
$15000 0 able in terms of cost reduction and improvement in
5.1. Theoretical contributions and managerial
implications
According to Christopher and Peck (2004), traditional
cost-driven supply chains need to be redesigned with an
approach that accounts for uncertainties that threaten
supply chain flows, incorporating factors such as suppli-
ers’ reliabilities and the risk of disruptions due to envi-
ronmental uncertainty. A firm can improve its respon-
siveness to supply chain disruptions by incorporating
redundant and/or flexible resources into its supply chain
design. A firm with redundant and/or flexible resources
can respond to disruptions by redirecting the flow of
materials whenever the normal flow is interrupted. Even
though the awareness for adding such resources into sup-
ply chains has increased, recent surveys from practition-
ers indicate that companies are still struggling with their
SCRM plans and whether the value of these resources jus-
tifies the investment required (Sáenz and Revilla 2014).
Thus, the assessment of the value of SCRM practices for
improving firm performance and the associated costs and
benefits needs to be further examined (e.g. Kamalahmadi
and Parast 2016b; Tang and Musa 2011).
We responded to this need by studying the relative
value of redesigning the supply chain of a firm to incor-
porate redundant resources or flexible resources. We pre-
sented a two-stage mixed-integer programming model
for several purposes: 1) to provide insights into the ways
a firm’s supplier selection and demand allocation are
affected by the selection and development of capabili-
ties based on volume flexibility or backup suppliers; 2)
to investigate trade-offs among supply chain resilience,
risk, and cost to determine how they interact; and 3)
to develop a more realistic supply chain model where
each primary supplier and backup supplier is exposed to
both an individual risk of an internal disruption and a
risk of an environmental disruption that could make all
suppliers in the same region simultaneously unavailable.
Our model provides important managerial implica-
tions for supply chain managers. First, we quantified the
 INTERNATIONAL JOURNAL OF PRODUCTION RESEARCH 21

Figure 11. Optimal Allocations of Primary Suppliers (black) and Backup Suppliers (gray) with Different Fixed Loss Cost.

Figure 12. Optimal Allocations of Primary Suppliers (black) and Backup Suppliers (gray) with One Supplier with High/Low Capacity.

service level. These findings confirm the results from

Shekarian, Nooraie, and Parast (2020) and Ivanov and
Dolgui (2020), which showed that flexibility and redun-
dancy make supply chain networks less sensitive to
external uncertainties. However, we found that adding
redundancy to the supply chain by designing a backup
supply base provides a better response to disruptions
compared to adding volume flexibility, from the perspec-
tive of both cost and service level. We regard volume
flexibility as an alternative plan for firms that are more
cost-driven and may not see an investment in resources
that are used only in disruptions as a viable option. We Figure 13. Relative Value of Different Practices in Terms of Cost
summarise these results in Figure 13. and Risk Preferences of a Firm.
Second, although we found better results from redun-
dancy compared to flexibility, our results also determined environment (e.g. some regions of East Asia where many
that the relative value of redundancy over flexibility is computer and auto-parts suppliers are located). Although
reduced with increases in the flexibility of suppliers, the some studies such as Ivanov and Dolgui (2020) and
reliability of suppliers, the reliability of the environment, Ivanov (2020c) showed that in the case of epidemic dis-
and the cost of lost sales. From a practical standpoint, ruptions, proactive measures and backup suppliers can
volume flexibility may not be an option in some situa- be less efficient due to quarantining entire regions and
tions (e.g. chemical processing or nuclear power plants) even continents, our results suggest that in the case of
where changing the capacity in a short time is expensive less severe regional disruptions, a firm can minimise the
and difficult, if not impossible. On the other hand, pre- impact of environmental disruptions by selecting sup-
disruption investment in backup resources that are only pliers from different regions. Furthermore, a balance of
used during disruptions is well justified for a risk-averse costs and risks (reliabilities) is required in both the pri-
firm that sources from suppliers operating in a volatile mary and backup supply bases. We showed that if a firm
22 M. KAMALAHMADI ET AL.
does not want to invest in SCRM practices, it should
select suppliers based on their reliabilities, which con-
firms the results by Sawik (2017, 2019), and Sadghiani,
Torabi, and Sahebjamnia (2015). However, by developing
a backup supply base, a firm can reduce the costs by shift-
ing some demand to inexpensive, unreliable suppliers, as
long as suppliers who are more reliable are selected in the
backup supply base. For the case with volume flexibility,
we showed that an even distribution of demand between
expensive/inexpensive and reliable/unreliable suppliers
provides the best response.
Third, to further analyze the value of flexible and
redundant resources, we then argued that these prac-
tices should not be considered in isolation; we pro-
posed a hybrid model that combines flexible suppliers
and backup suppliers. Our results showed that a hybrid
flexible-backup-supplier plan outperforms other prac-
tices by providing lower pre-disruption investment costs
and lower expected total costs, while providing an iden-
tical or superior service level relative to each of the prac-
tices alone. To the best of our knowledge, our study is
the first to analyze and quantify a hybrid plan utilising a
combination of flexibility practices and redundancy prac-
tices. A hybrid plan that adds some level of flexibility to a
backup plan may be a more suitable option, especially for
managers who, as Chopra and Sodhi (2014) mentioned,
find it hard to invest in redundant resources that may
have no use in normal conditions.
Furthermore, the analysis of VSS metric results in
this study showed that the efforts to solve the stochastic
programming model are of great importance and could
significantly decrease the company’s expected total cost.
In addition, the analysis of EVPI metric results demon-
strated that due to uncertainty in demand, the company
faces higher costs, and it is recommended to consider
accurate forecasting methods and better information-
sharing mechanisms. Our findings challenge some of the
popular management thinking and practices such as JIT
and lean in their ability to address a firm’s capabilities
to mitigate disruptions (Birkie 2016; Davis, Brown, and
Feander 2015; Maslaric et al. 2013). We showed that even
though more entities were added to the supply base in
each setting (flexible suppliers and backup suppliers), the
overall impact on supply chain cost was reduced when
supply disruptions were incorporated into the model.
Furthermore, we showed that there is not one optimal
solution for all firms in terms of supplier selection and
demand allocation. Our numerical analyses and sensitiv-
ity analyses highlight the need for managers to carefully
quantify the value of parameters in order to get the best
out of their SCRM strategy. We showed that the avail-
ability of an extremely reliable supplier can decrease the
size of the supply base. A supplier with no flexibility and
no emergency capacity is very likely to be removed from
the supply base. This result confirms the findings from
Shekarian, Nooraie, and Parast (2020). As the flexibil-
ity of the supplier increases, the supplier is added to the
supply base. After further increases in flexibility, at a cer-
tain point, the supplier’s demand allocation decreases,
with the excess capacity reserved to satisfy demand allo-
cation during disruptions. In contrast, a supplier with
large emergency capacity is selected as a backup supplier.
This suggests that accurate estimates of these parame-
ters play a significant role in a firm’s success to cope with
disruptions.
Finally, the results of this study can also be extended
to the supply chain disruptions due to COVID-19 pan-
demic. Ivanov and Das (2020) concluded that while
the full impact of COVID-19 on supply chains remains
unknown, the benefits associated with creating flexible,
redundant, and real-time supply chains to dynamically
reallocate demand and supply should be highlighted.
In addition, Ivanov (2020b) showed that supply chain
managers should use available technologies and rele-
vant techniques such as simulation approach (which is
also used in this study) in order to predict the impact
of COVID-19 on the firm’s supply chains. Moreover,
Ivanov and Dolgui (2020) emphasized the role of inter-
twined supply networks as resilient networks in mitigat-
ing the effect of COVID-19 disruption on supply chains.
In our study, the backup suppliers can facilitate build-
ing an intertwined network among the suppliers. Lastly,
Queiroz et al. (2020) concluded that in assessing the effect
of pandemic outbreaks such as COVID-19 on supply
chains, mathematical optimisation theories and simula-
tions techniques can be used to develop robust resilience
plans. Therefore, the approaches that are utilised in this
study are also appropriate in responding to COVID-19
disruption.
5.2. Limitations and future research
In this study, we considered disruption-mitigation prac-
tices based on volume flexibility, backup suppliers, or
both. We examined their impact on firm performance for
a single-period product with a supply chain exposed to
two types of disruption: individual suppliers and regions.
We showed adding flexibility to the backup practice can
result in more benefits, but we were unable to capture
the optimal combination of the two practices. Finding
the optimal combination requires a rigorous analytical
model, which can be a goal for future research. Another
direction for future studies is to examine the cost/benefits
of pursuing SCRM practices on a multi-horizon time
scale, to see how the decisions can change when there is

a possibility of changes in the environment or suppliers’
reliabilities over time.
With respect to our data, we used the data used by
Ruiz-Torres, Mahmoodi, and Zeng (2013), and Kamalah-
madi and Parast (2016a). This data is based on the obser-
vation of a manufacturer of appliances. We acknowledge
that a more detailed data set could have made our results
stronger. Finally, in this study, firm performance was
assessed using three performance measures: expected
total costs, expected lost sales, and expected service level.
Other performance measures could be used to investi-
gate this problem from a different perspective. It would
be interesting to develop a profit-maximization model to
capture the impact of disruptions on firm profit, taking
into account both the revenue and cost dimensions.
6. Conclusion
This study examined an integrated approach to sup-
plier selection, demand allocation, and the development
of capabilities based on redundancy and flexibility, to
increase the responsiveness of a supply chain that is
exposed to supply risk and environmental risk. The
proposed model enhances our understanding of sup-
ply chain risk management, supply chain responsive-
ness, and the trade-off between redundancy and flexi-
bility capabilities. Using a two-stage mixed-integer pro-
gramming model, the importance of considering con-
tingency planning in order to mitigate the negative
impact of disruptions was discussed. We proposed a
hybrid practice combining capabilities from the flexible-
suppliers practice and the backup-suppliers practice, and
we showed that the hybrid practice is more effective
than either of those practices alone. We also empha-
sized the effects of several factors on management deci-
sions regarding selection of flexible and backup suppli-
ers: the reliability of regions and suppliers, the flexibil-
ity and emergency capacity of suppliers, the associated
costs of adding resilience capabilities, and the alloca-
tion of normal and emergency items. The findings can
help scholars and practitioners design more resilient sup-
ply chains that are more responsive to supply chain
disruptions.
Acknowledgments
This research is based on work supported by the National
Science Foundation (NSF) under grant number 1238878.
Any opinions, findings, and conclusions or recommendations
expressed in this material are those of the author(s) and
do not necessarily reflect the views of the National Science
Foundation.
INTERNATIONAL JOURNAL OF PRODUCTION RESEARCH 23
Disclosure statement
No potential conflict of interest was reported by the author(s).
Funding
This work was supported by National Science Foundation
(NSF) .
Notes on contributors
Masoud Kamalahmadi is an assistant professor in the Depart-
ment of Management Science at University of Miami’s Herbert
Business School. He received his Ph.D. in Operations Manage-
ment and Decision Sciences from Indiana University’s Kelley
School of Business. He has done extensive research in the field
of supply chain risk management. His other research inter-
ests are healthcare operations management and behavioural
operations management.
Mansoor Shekarian is a Ph.D. student in Operations and Busi-
ness Analytics Department at the University of Oregon. He
received his B.S. in Industrial Engineering from Sharif Uni-
versity of Technology and his M.S. in Technology Manage-
ment from North Carolina A&T State University. His research
interest includes service operations management, supply chain
management, and applied econometrics. He is a member of
the Institute for Operations Research and the Management
Sciences (INFORMS), the Production and Operations Man-
agement Society (POMS), and the Manufacturing and Service
Operations Management Society (M&SOM).
Mahour Mellat Parast is an Eminent Scholar at the Ira
A. Fulton Schools of Engineering at Arizona State Univer-
sity. His current research is focused on supply chain risk
and resilience management, and process and product inno-
vation. His scholarly works have appeared in several peer-
reviewed journals such as Journal of Operations Management,
Decision Sciences Journal, International Journal of Produc-
tion Research, International Journal of Production Economics,
International Journal of Logistics Management, International
Journal of Logistics Research and Applications, Supply Chain
Management: An International Journal, and Production Plan-
ning & Control. He is a member of the Decision Sciences
Institute (DSI), the Production and Operations Management
Society (POMS), and the Academy of Management (AOM).
Mahour received his Ph.D. in Industrial & Management Sys-
tems Engineering from University of Nebraska-Lincoln, M.S.
from Iran University of Science and Technology (Indus-
trial Engineering), and B.S. from Sharif University (Industrial
Engineering).
Note
1. From the perspective of resource dependency theory, these
two strategies are also referred to as Buffering (keeping
additional inventory) and Bridging (establishing strong
linkages with the exchange partners); buffering is more
externally-oriented, while bridging is more internally-
driven (Oliver 1991; Carroll, 1993; Gresov and Drazin
1997; Bode et al. 2011; Talluri et al. 2013). Because both
24 M. KAMALAHMADI ET AL.

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28 M. KAMALAHMADI ET AL.

Appendix
In the following tables, ETC refers to expected total cost, SL refers to service level, and ELS refers to expected lost sales.

Table A1. Detailed Results in Figure 5.

No Flexibility/Backup Only Flexibility Only Backup
Trial ETC SL ELS ETC SL ELS ETC SL ELS
1 395,419.20 0.95 396.80 329,664.23 0.95 229.33 286,762.13 0.95 81.21
2 313,684.80 0.97 238.40 297,940.01 0.97 178.85 298,320.11 0.97 108.38
3 379,619.20 0.95 395.20 316,045.96 0.95 174.81 323,296.20 0.95 179.32
4 433,435.20 0.95 396.80 369,976.94 0.95 240.85 310,774.44 0.95 146.32
5 401,179.20 0.94 473.60 385,021.66 0.94 397.94 308,788.33 0.94 138.86
6 458,318.40 0.92 627.20 380,508.57 0.92 381.47 361,215.43 0.92 281.51
7 365,006.40 0.95 396.80 361,231.08 0.95 381.02 311,333.83 0.95 156.46
8 468,916.80 0.94 473.60 370,592.58 0.94 243.74 337,343.02 0.94 221.89
9 367,080.00 0.96 320.00 323,991.61 0.96 204.52 306,311.49 0.96 132.24
10 353,080.00 0.97 240.00 324,179.96 0.97 175.03 295,294.63 0.97 101.50
11 408,422.75 0.95 432.04 408,575.79 0.95 419.17 311,473.75 0.95 150.49
12 326,155.24 0.98 166.64 326,938.27 0.98 106.97 301,159.98 0.98 74.13
13 519,360.31 0.92 632.86 384,220.86 0.92 252.73 363,623.61 0.92 200.06
14 506,070.88 0.92 676.82 408,425.18 0.92 407.78 375,107.58 0.92 309.32
15 398,796.53 0.96 343.71 388,466.46 0.96 270.26 327,021.37 0.96 131.42
16 475,443.37 0.94 491.58 392,583.46 0.94 280.86 380,177.15 0.94 217.10
17 467,197.95 0.94 468.86 391,974.89 0.94 271.71 375,583.49 0.94 201.07
18 430,776.28 0.95 410.35 365,129.84 0.95 195.57 342,164.25 0.95 144.60
19 476,872.73 0.93 536.64 443,758.87 0.93 443.54 337,195.35 0.93 144.21
20 407,602.17 0.95 367.77 354,250.88 0.95 217.17 345,018.03 0.95 173.92
21 369,682.23 0.95 388.93 309,422.56 0.95 143.28 264,837.56 0.95 85.52
22 338,431.33 0.96 284.18 308,030.47 0.96 157.52 265,984.63 0.96 66.57
23 408,119.94 0.95 369.18 393,835.25 0.95 284.78 332,440.11 0.95 142.12
24 248,094.43 0.99 83.36 272,664.23 0.99 59.09 237,196.82 0.99 33.78
25 312,470.52 0.99 86.22 315,748.10 0.99 53.70 303,063.30 0.99 37.98
26 418,633.86 0.93 520.52 420,152.95 0.93 471.18 305,868.54 0.93 194.99
27 495,645.01 0.92 648.49 422,233.12 0.92 373.76 348,220.75 0.92 235.24
28 345,248.25 0.97 260.84 342,097.17 0.97 210.05 288,111.52 0.97 92.08
29 464,137.10 0.92 603.07 411,470.92 0.92 435.26 300,110.60 0.92 140.25
30 287,061.99 0.99 103.15 289,063.78 0.99 66.25 265,221.24 0.99 28.09
 INTERNATIONAL JOURNAL OF PRODUCTION RESEARCH 29

Table A2. Detailed Results in Figure 6.

No Flexibility/Backup Only Flexibility Only Backup Hybrid Backup and Flexibility
Trial ETC SL ELS ETC SL ELS ETC SL ELS ETC SL ELS
1 394,828.80 0.95 395.20 341,009.84 0.94 203.20 284,069.03 0.99 29.63 282,600.26 0.99 31.95
2 388,948.80 0.96 316.80 310,523.16 0.95 169.43 251,548.80 0.99 39.87 183,822.10 0.99 39.66
3 293,132.40 0.99 119.60 287,934.98 0.99 107.52 241,611.99 0.99 15.25 241,611.99 0.99 15.25
4 358,512.00 0.96 317.60 303,734.55 0.96 157.61 273,253.08 0.99 29.48 265,894.20 0.99 31.83
5 368,016.00 0.97 238.40 315,883.81 0.97 141.29 239,732.66 0.99 25.43 239,732.66 0.99 25.43
6 395,419.20 0.95 396.80 316,254.07 0.94 161.30 279,534.46 0.99 22.67 264,842.62 0.99 23.83
7 481,896.00 0.93 550.40 333,367.80 0.95 170.75 284,889.19 0.99 44.02 284,889.19 0.99 44.02
8 410,845.44 0.97 271.04 298,573.54 0.98 65.10 250,377.31 0.99 27.64 230,292.40 0.99 27.90
9 407,716.42 0.96 326.14 328,711.43 0.94 149.32 252,132.86 0.99 40.42 253,937.78 0.99 41.39
10 289,354.56 0.99 87.92 253,386.53 0.99 40.46 226,919.52 0.99 20.94 223,827.98 0.99 21.20
11 423,868.10 0.94 494.24 314,006.15 0.93 142.97 280,472.85 0.99 46.59 269,018.11 0.99 44.36
12 421,478.35 0.94 508.03 406,073.44 0.92 458.17 244,759.37 0.98 46.36 244,759.37 0.98 46.36
13 402,950.95 0.96 355.06 352,435.48 0.94 221.36 254,210.45 0.99 39.05 254,210.45 0.99 39.05
14 481,163.37 0.92 668.90 435,826.23 0.97 523.70 278,952.55 0.98 60.87 278,952.55 0.98 60.87
15 384,395.86 0.96 325.33 309,193.97 0.96 151.19 235,768.69 0.99 49.29 235,768.69 0.99 49.29
16 397,461.90 0.97 233.97 391,513.05 0.99 220.47 268,171.91 0.99 40.47 268,171.91 0.99 40.47
17 370,384.73 0.96 287.15 295,763.23 0.96 98.68 277,891.18 0.99 31.18 278,171.97 0.99 20.20
18 414,977.21 0.94 470.21 305,966.99 0.95 187.22 235,237.26 0.99 39.28 235,237.26 0.99 39.28
19 512,058.11 0.92 653.16 439,002.56 0.90 500.45 270,139.11 0.98 66.37 271,109.19 0.98 71.39
20 475,455.07 0.92 673.27 401,633.97 0.94 448.25 259,976.23 0.99 38.47 256,763.93 0.99 44.56
21 367,475.83 0.98 172.59 311,525.33 0.98 77.20 281,852.41 0.99 28.95 279,479.83 0.99 30.59
22 524,480.30 0.92 646.92 469,633.25 0.96 523.06 228,879.06 0.99 44.41 228,879.06 0.99 44.41
23 519,180.94 0.92 632.37 381,154.69 0.91 316.56 279,003.91 0.99 52.39 274,307.06 0.99 50.01
24 351,802.83 0.97 257.62 299,906.29 0.97 41.94 263,025.30 0.99 36.70 277,079.70 0.99 25.67
25 399,251.03 0.95 365.81 329,593.46 0.95 197.08 239,042.63 0.99 34.78 243,238.33 0.99 32.41
26 296,507.23 0.97 254.69 299,692.96 0.96 228.61 228,691.10 1.00 18.07 230,567.64 0.99 29.25
27 449,922.88 0.93 544.51 412,645.52 0.92 424.37 258,041.39 0.99 55.50 258,041.39 0.99 55.50
28 424,599.34 0.94 496.21 413,803.15 0.94 457.51 290,893.31 0.98 58.77 290,893.31 0.98 58.77
29 426,518.71 0.93 541.72 312,590.41 0.95 185.23 264,071.19 0.99 49.99 266,315.25 0.99 50.54
30 399,477.98 0.94 469.03 260,720.77 0.93 116.91 215,170.48 0.99 44.90 218,378.14 0.99 41.87