Rewiring of supply chains could cut risk by up to half

A new study by ReMASS Team members Giacomo Zelbi, Leonardo Ialongo, and Stefan Thurner finds that rearranging firms' supply relationships could cut the risk of cascading disruptions in supply chains by up to half, without reducing output.

Modern supply chains are highly interconnected networks. While these connections enable the efficient flow of goods and services, they can also allow disruptions at one company to spread widely. A local firm failure, for example, may affect its customers and suppliers, potentially triggering cascading disruptions across entire industries or regions.

In the study, the researchers investigated whether this type of systemic risk can be reduced by rewiring supply-chain links or, in other words, by changing which firms buy from which suppliers, while respecting firms' production constraints. Using methods from statistical physics, the team searched for network configurations that substantially reduce the potential for disruptions to cascade.

The researchers analysed six supply-chain subnetworks from Ecuador and Hungary. Their results show that systemic risk could be reduced by between 16% and 50% simply by rearranging the supply connections.
The changes involved are comparable in scale to the supplier-customer turnover that occurs naturally in supply chains over a few years, but changing a much smaller number of links might be enough to drastically reduce risk.

The findings suggest that existing supply-chain structures may contain avoidable sources of vulnerability. Rather than increasing inventories or adding backup suppliers, targeted changes in supplier relationships could offer a promising route to strengthening resilience against shocks.

Read the full paper here.