Cost-benefit Analysis of Decentralized Ordering on Multi-tier Supply Chain by Risk Simulator

Masakatsu MORI, Ryoji KOBAYASHI, Masaki SAMEJIMA, Norihisa KOMODA

Abstract

For the retailer on supply chain, decentralized ordering to multiple suppliers is an effective method to mitigate the risk that the retailer cannot sell the product to customers when the suppliers are down by catastrophic disasters. But decentralized ordering costs the retailer because the retailer procures products from the suppler whose procurement cost is

expensive. For the retailers’ cost-benefit analysis of the decentralized ordering, we address developing the risk simulator on multi-tier supply chain to evaluate the effect of risk mitigation and the cost by decentralized ordering. In order to develop the risk simulator for the multi-tier supply chain, we combine the risk simulator for the 2-tier supply chain as a building block. In addition, when the 2-tier supply chain is combined, the risk simulator calculates propagation of the risk and the cost from a 2-tier supply chain to the others. Applying the risk simulator to the real supply chain with different parameter values, the authors confirmed that the risk simulator enables to find the relationship between the cost-benefit characteristic and the multi-tier supply chain model.

Keywords

cost-benefit analysis, conditional value at risk, decentralized ordering, multi-tier supply chain, risk simulator

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