Ripple effect in the supply chain network: Forward and backward disruption propagation, network health and firm vulnerability.

ABSTRACT

A local disruption can propagate to forward and downward through the material flow and eventually influence the entire supply chain network (SCN). This phenomenon of ripple effect, immensely existing in practice, has received great interest in recent years. Moreover, forward and backward disruption propagations became major stressors for SCNs during the COVID-19 pandemic triggered by simultaneous and sequential supply and demand disruptions. However, current literature has paid less attention to the different impacts of the directions of disruption propagation. This study examines the disruption propagation through simulating simple interaction rules of firms inside the SCN. Specifically, an agent-based computational model is developed to delineate the supply chain disruption propagation behavior. Then, we conduct multi-level quantitative analysis to explore the effects of forward and backward disruption propagation, moderated by network structure, network-level health and node-level vulnerability. Our results demonstrate that it is practically important to differentiate between forward and backward disruption propagation, as they are distinctive in the associated mitigation strategies and in the effects on network and individual firm performance. Forward disruption propagation generally can be mitigated by substitute and backup supply and has greater impact on firms serving the assembly role and on the supply/assembly networks, whereas backward disruption propagation is normally mitigated by flexible operation and distribution and has bigger impact on firms serving the distribution role and on distribution networks. We further analyze the investment strategies in a dual-focal supply network under disruption propagation. We provide propositions to facilitate decision-making and summarize important managerial implications.