Illustrative Example of Risk Detectability and Recovery

We shall now illustrate the computation of Risk Detectability and Risk Recovery functions with a numerical example. 

Let us assume that the transition time (in days) between a tier-1 supplier and the buyer follows a Uniform (1,2) distribution and transition time between a tier-2 and a tier-1 supplier follows a Uniform (2,4) distribution. Sampling from these uniform distributions, let (B) = 2, (C) = 2, 

Values in the column of Table 7.12 can be used in supply chain decision making. For example, a buyer may consider minimizing the total transition time of his supply chain as a supplier selection criterion. Taking the analysis one step further, one of the functions /i(A) or /2(A) introduced earlier in the section can be used to characterize losses to the supply chain due to disruption delays. The last column in Table 7.12 shows the magnitude of losses the buyer would suffer from supplier disruptions under the / (A) function, where /i(A) = ln(A). As previously noted, buyers can use the/j(A) values (or/2(A) values given that they estimate the required parameters) to select among different suppliers. 

Another important aspect when dealing with disruptions is the risk recovery time discussed in the Conceptual Model for Risk Recovery 

Section (Section 7.13.2). We use an Exponential model to compute recovery time where the parameter p of e exponential distribution can be computed as in Equation 7.22. Let us assume that tier-1 suppliers have good backup plans and set 5 = 1. Assume that supplier B has 3000 worth of inventory, supplier C has 5000 worth of inventory and supplier D has 1000 worth of inventory. 

---