Impact of capacity volatility and input substitutability on supply chain resilience

Abstract

Supply chains are intrinsically vulnerable to stochastic shocks due to their sequential production dependencies. Building on the Feld-Barthelemy framework, we investigate how capacity volatility and input substitutability determine critical demands in stochastic supply chains. By modeling production capacity with a truncated normal distribution, we show that in long supply chains, reducing capacity volatility is often more effective than increasing average capacity, emphasizing the need for firm-level synchronization. Furthermore, introducing a modified Leontief-type production function reveals that input substitutability effectively disperses stochastic shocks. Supplier diversification inherently raises critical demands, even under fixed maximum capacities, by introducing the effect of network topology that independently enhances the resilience of physical stock. Our findings demonstrate that mitigating capacity volatility and structurally diversifying supply routes are just as crucial to supply chain resilience as traditional inventory expansion.

arXiv comment8 pages, 4 figures in the main text, and 3 figures in the appendices