Systemic risk mitigation in supply chains through network rewiring

Area of Science:

• Network science
• Supply chain management
• Statistical physics

Background:

• Supply chains are vulnerable to systemic risk due to interdependencies, leading to cascading disruptions.
• Systemic risk in supply chain networks (SCN) is quantifiable and linked to network topology and dynamics, but the specific contribution of topology is unclear.

Purpose of the Study:

• To investigate if rewiring supplier-customer pairs can significantly reduce systemic risk in supply chains.
• To quantify the impact of network topology on systemic risk and assess the effectiveness of targeted network modifications.

Main Methods:

• Quantified systemic risk in supply chain networks (SCN).
• Employed a statistical physics method to minimize systemic risk while respecting firm production constraints.
• Analyzed subnetworks of national SCNs from Ecuador and Hungary.

Main Results:

• Systemic risk was reduced by 16-50% through rewiring supplier-customer pairs, without affecting firm production output.
• Risk reduction was achieved by altering network connectivity in significant ways.
• The study identified that current SCN topologies possess unnecessarily high levels of systemic risk.

Conclusions:

• Targeted rewiring of supplier relationships can substantially enhance supply chain resilience.
• Network topology plays a critical role in determining systemic risk levels.
• Resilience improvements comparable to natural network evolution can be achieved through strategic supplier modifications.