Allocation flexibility for agribusiness supply chains under market demand disruption

Abstract

This paper develops a multi-commodity multi-period optimisation model to analyse market demand disruption risk in agribusiness supply chains. It investigates the role of allocation flexibility and the effectiveness of multiple risk management strategies for achieving allocation flexibility. A robust optimisation formulation is used to obtain risk-averse solutions for an objective combining expected profit and risk. Numerical results are presented for a real-life case study of Zespri’s kiwifruit supply chain. The results show that allocation flexibility is effective for mitigating market demand disruption risk. Three proposed risk management strategies, namely diversified demand market, backup demand market and flexible rerouting, improve both expected profit and risk measures. While diversified demand market and backup demand market strategies are equally important for all decision-makers, flexible rerouting is especially significant for less risk-averse decision-makers.

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