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ANALYTICS IN A WORLD OF DISRUPTIONS
IAC2021 Volume 18
Lingxiu Dong, Volume Co-editor
Colin Kessinger, Volume Co-editor
Danko Turcic, Volume Co-editor
Nicholas G. Hall, Editor
Published November 23, 2021
Risk and supply chain disruption received renewed attention when many essential products became unavailable during the COVID-19 pandemic, and prolonged material shortages hampered many industries’ recovery and growth. The objective of this special issue is to present some of the latest research articles on the topic. The strategies that the selected literature suggests to firms as protection against disruption risk are buffering, financial hedging, contingency planning, and crisis management and insurance.
The effectiveness and cost of these strategies make them appropriate for different situations. Direct buffering and financial hedging often tie up a firm’s financial resources. Both techniques, however, endow firms with capacity – operational or financial – that can be tapped whenever needed. Thus, they are the most effective against frequent but less severe disruptions (e.g., ordinary demand fluctuations and routine supply glitches). Contingency planning trades smaller backup capacity costs for lower capacity availability. (Accessing capacity through an indirect buffer is slower than through a direct one.) As such, contingency planning works well against less frequent disruptions whose mitigation would require extensive (i.e., costly) buffers and hedges. Finally, insurance is a financial instrument that compensates for financial losses associated with a disruption without necessarily fixing the disruption itself. Insurance, however, is an essential source of liquidity that might allow firms to remain operational after the failure.
The effectiveness and cost of these strategies make them appropriate for different situations. Direct buffering and financial hedging often tie up a firm’s financial resources. Both techniques, however, endow firms with capacity – operational or financial – that can be tapped whenever needed. Thus, they are the most effective against frequent but less severe disruptions (e.g., ordinary demand fluctuations and routine supply glitches). Contingency planning trades smaller backup capacity costs for lower capacity availability. (Accessing capacity through an indirect buffer is slower than through a direct one.) As such, contingency planning works well against less frequent disruptions whose mitigation would require extensive (i.e., costly) buffers and hedges. Finally, insurance is a financial instrument that compensates for financial losses associated with a disruption without necessarily fixing the disruption itself. Insurance, however, is an essential source of liquidity that might allow firms to remain operational after the failure.