Fragmentation of production amplifies systemic risks from extreme events in supply-chain networks

16990 8 92939 2 269342 document 92939 journal.pone.0244196.pdf application/pdf 5fbe19b48128f4c126861ae4797ce34c MD5 1373159 2021-01-12 15:25:50 https://pure.iiasa.ac.at/id/eprint/16990/1/journal.pone.0244196.pdf 16990 1 1 application/pdf text en public cc_by_4

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http://eprints.org/relation/isVersionOf https://pure.iiasa.ac.at/id/document/92939 http://eprints.org/relation/isVolatileVersionOf https://pure.iiasa.ac.at/id/document/92939 http://eprints.org/relation/issmallThumbnailVersionOf https://pure.iiasa.ac.at/id/document/92939 archive 353 disk0/00/01/69/90 2021-01-12 15:29:30 2021-09-14 05:00:39 2021-01-12 15:29:30 article show Colon C. 8883 0000-0002-4132-4648 Brännström Å. 8085 Rovenskaya E. 8206 0000-0002-2761-3443 Dieckmann U. 1668 0000-0001-7089-0393 Fragmentation of production amplifies systemic risks from extreme events in supply-chain networks pub prog_asa prog_eep prog_ysp Climatic and other extreme events threaten the globalized economy, which relies on increasingly complex and specialized supply-chain networks. Disasters generate (i) direct economic losses due to reduced production in the locations where they occur, and (ii) to indirect losses from the supply shortages and demand changes that cascade along the supply chains. Firms can use inventories to reduce their risk of shortages. Since firms are interconnected through the supply chain, the level of inventory hold by one firm influences the risk of shortages of the others. Such interdependencies lead to systemic risks in supply chain networks. We introduce a stylized model of complex supply-chain networks in which firms adjust their inventory to maximize profit. We analyze the resulting risks and inventory patterns using evolutionary game theory. We report the following findings. Inventories significantly reduce disruption cascades and indirect losses at the expense of a moderate increase in direct losses. The more fragmented a supply chain is, the less beneficial it is for individual firms to maintain inventories, resulting in higher systemic risks. One way to mitigate such systemic risks is to prescribe inventory sizes to individual firms—a measure that could, for instance, be fostered by insurers. We found that prescribing firm-specific inventory sizes based on their position in the supply chain mitigates systemic risk more effectively than setting the same inventory requirements for all firms. 2020-12-28 published Public Library of Science (PLoS) 10.1371/journal.pone.0244196 2861 39 260 66 public PLoS ONE 15 12 e0244196 TRUE 1932-6203 FALSE yes info:eu-repo/semantics/article