A fuzzy model to evaluate flexibility strategies

for mitigating supply chain risk

Xiaojun Wang
Department of Management, University of Bristol, 8 Woodland Road, Bristol, BS8 1TN, UK,
xiaojun.wang@bristol.ac.uk
Abstract
Competing in an increasingly uncertain business environment, supply chains need to be flexible to enhance their
resiliency. However, flexibility does not come free and it is important to implement appropriate flexibility
strategies to meet business needs. This paper presents a novel approach that integrates analytical hierarchical
process (AHP) and fuzzy logic for the evaluation of flexibility strategies in order to mitigate supply chain risks.
A numerical example is provided as an operational guideline for how to apply it to the life cycle assessment of
eco-designs. The results show that the proposed fuzzy AHP approach is a viable and highly capable
methodology. It provides a practical solution by which companies can systematically assess the risks involved in
the supply chain and indentify appropriate flexibility strategies to address them.
Key words: Supply chain risk, flexibility, fuzzy set theory, analytical hierarchy process, risk assessment

1.
Introduction
Supply chains are networks of suppliers, manufacturers, distributors, and retailers that are
connected by transportation, information, and financial infrastructure (Sahin and Robinson,
2002). Managing a supply chain effectively to fulfil customer needs is a difficult task. Various
sources of uncertainty and complex interrelationships between different entities make the
supply chain even harder to manage. Globalisation has added further complexity to supply
chains which are usually slow to respond to changes and more vulnerable to business
disruptions. For instance, the global supply chains have experienced severe disruption after
the earthquake and tsunami in Japan and flooding in Thailand in 2011. The ongoing piracy in
the India Ocean has affected international shipping lines for many years. The Arab Spring in
the Middle East also has caused ambiguity of global oil supply which leads to more volatility
of the oil market.
Supply chains need to be flexible and work in a more collaborative manner. Businesses have
recognized the potential competitive advantages of flexibility and agility for coping with
increased environmental uncertainty, adapting to rapidly changing markets, and reacting
within smaller windows of opportunity for decision-making (Giachetti et al. 2003). In results,
many firms have increased the flexibility of their supply chains in order to adapt quickly and
efficiently to the changing environment (Swarfford et al., 2006). However, implementing
appropriate flexibility strategies is important, because flexibility does not come free, and any
strategic investments in flexibility based on poorly considered competencies could be
detrimental (Gerwin, 1993; Narasimhan et al., 2004; Sawhney, 2006). For instance, flexibility
in delivery quantity and due date could lead to a reduction of production cost and, at the same
time, compromise service by increasing the risk of failing to meet customer demand. In fact,
the decision of adopting appropriate flexibility strategies for managing supply chain risks
requires a trade-off between the benefits of implementing such strategies and cost involved.
This paper provides a new approach to model the supply chain decisions on flexibility using
AHP and fuzzy set theory. AHP is a useful method for multiple criteria decision making
(MCDM) problems particularly when qualitative assessments are needed. With the advantage
of mathematically representing vagueness and uncertainty, fuzzy AHP offers a more precise
and accurate analysis by encountering the uncertainty in a fuzzy environment. The novelty of
1

the model lies in the fact that an analytical tool enables the specific environmental uncertainty
concerning the supply chain to be taken into consideration in making the choice of flexibility
strategies. It would help companies identity appropriate flexibility strategies to mitigate
supply chain risks and meet their specific business needs. The rest of the paper is organised as
follow. Section 2 provides the review of related work and research approaches. Section 3
offers a detailed explanation of our approach. In Section 4, an illustrative case study is
presented in order to demonstrate the functionality of our model. Section 5 offers conclusions
and suggests some future research directions.
2.
Literature Review
In a supply chain, uncertainty is a major factor that can influence the effectiveness of supply
chain coordination. With the increasing trend of collaboration with international supply
partners and expended supply networks, it also increases the uncertainties in supply chains
that significantly threaten normal business operations of the organisations in the supply chain.
The sources of uncertainty are often classified into three categories: supply, process and
demand (Lee and Billinton, 1993; Childerhouse, and Towill, 2002; Ho et al., 2005; Tang and
Tomlin, 2008). Supply uncertainty is often caused by the variability brought by the suppliers
such as the faults or delays in delivery. A long logistics cycle affects product availability and
increases the risk of inventory obsolescence. Demand uncertainty is often presented as a
volatility demand. Mistakes in demand forecasting may either lead to excessive product
inventory or loss of opportunities. Process uncertainty also known as manufacturing
uncertainty is a result of unreliable production process. While process uncertainty has often
been discussed in the literature of production and manufacturing studies, demand uncertainty
and supply uncertainty are two of the most common supply chain risks that have been widely
studied in the literature (Handfield et al. 2009).
Supply chain risk or vulnerability has emerged as a key challenge to supply chain
management (SCM). Supply chain risk management is a field of escalating importance and is
aimed at developing approaches to the identification, assessment, analysis and treatment of
areas of vulnerability and risk in supply chains (Neiger et al., 2009). There has emerged a
growing body of research into risk from a number of different perspectives such as
economics, finance and international management (Juettner, 2005). Researchers in the SCM
field tend to focuses on risks related to supply and demand coordination and uncertainty
(Nagurney, et al., 2005; Cigolini and Rossi, 2006; Chan and Kumar 2007; Li, 2007; Tang and
Tomlin, 2008; Yang et al. 2009; Xia and Chen, 2011) and disruption risks that are caused by
such events as natural disaster, terrorism and labour strike (Kleindorfer and Saad 2005; Tang
2006; Knemeyer, et al., 2009; Trkam and McCormack 2009). The incorporation of risk
constructs and management response within SCM reflects both theoretical imperatives and
practitioner requirements (Ritchie and Brindely, 2007).
In order to reduce any adverse impacts, there is a need for supply chain organisations to adapt
to such an uncertain environment. Tang (2006) suggested that robust strategies for mitigating
supply chain disruptions can not only manage the inherent fluctuations efficiently but also
lead to a more resilient supply chain in the face to major disputations. To manage the
dynamics of the market places and associated risks, flexible supply chain management has
become new trends in globalisation. Flexible management concept has proposed many
strategic practices that are employed by businesses to manage supply chain uncertainties and
accommodate variations in each others businesses. These practices include postponement,
just in time, flexible manufacturing process, multiple suppliers and flexible supply contract.
For instance, flexible manufacturing strategy is usually employed to fluctuations of process
2

capacity risk and uncertain customer demand risks (Oh et al. 2011). Supply flexibility is also
used by firms to counter demand uncertainty (Stevenson and Spring, 2007). Other researchers
(Sanchez, 1995; Uption, 1997; Chang et al. 2003; Chan and Chan, 2010) argue that flexibility
can be used proactively to create a competitive advantage for businesses.
There is no commonly accepted definition of flexibility, with existing definitions covering
only limited aspects (Beach et al. 2000). Nagarur (1992) defines flexibility at the internal
production level as the ability of the manufacturing system to cope with changes such as
product, process, load, and machine breakdown. Upton (1994) provides a more
comprehensive definition as the ability of the enterprise to respond to variations more quickly,
with lower costs, and less effect on system effectiveness. The concept of supply chain
flexibility extends the principle of flexible production systems to the whole supply chain
(Biork and Carlsson, 2007; Stevenson and Spring 2007)). Das and Abdel-Malek (2003) define
the flexibility of supply chain as the robustness of the buyer-supplier relationship under
changing supply chain conditions. A good buyer-supplier relationship should therefore be
robust enough to provide sufficient flexibility. The supply chain flexibility has become
increasingly important with global competition swiftly intensifying and shifting to the supply
chain level (Chuu, 2011). Such strategies are even more essential for those firms working in
uncertain business environment. Snchez and Prez (2005) analyze 126 Spanish automotive
suppliers and find a significant direct relationship between environmental uncertainty and
supply chain flexibility. Merschmann and Tonemann (2011) examine the relationship
between environmental uncertainty, supply chain flexibility, and firm performance through a
survey of 85 German manufacturing companies. Their research found that in uncertain
environments companies with highly flexible supply chains perform better than those with
less flexible supply chains while in certain environments the opposite holds.
Schtz and Tomasgard (2011) studied the value of different types of flexibility in operational
supply chain planning subject to uncertain demand. Their research provides some initial
insight in the relationship between uncertainty and the need for flexibility. However, more
research is required to further increase the understanding of the value of different types of
flexibility and the conditions under which this flexibility is valuable (Gong 2008). Tang and
Tomlin (2008) investigate strategies that enable supply chains to become more flexible so as
to reduce the negative implications of the occurrence of certain events associated with supply,
process, and demand risks. While the research illustrates the power of flexibility for reducing
supply chain risk, it also points out that more analysis would be required to examine the
benefits of a combination of different flexibility strategies. Since most organisations do not
have sufficient resource to implement these flexibility strategies and increasing the flexibility
of supply chain operations does not always bring greater economic benefit, it is important to
have an effective decision support method that enables organisations to evaluate various
flexibility strategies based their business needs.
Evaluating flexibility strategies for mitigating supply chain risk involves multiple factor
analysis. AHP (Saaty, 1980) is one of the most widely used approaches for addressing
multiple-criteria decision making problems in an attribute hierarchy. AHP works with
hierarchies where the top level drives the focus of the problem and the bottom level consists
of the decision options (Wu et al. 2006). It is a useful approach for evaluating complex
multiple criteria alternatives which enables a decision-maker to determine his or her weights
by conducting pair-wise comparisons between criteria. It is established using a nine-point
scale which converts the human preferences between available alternatives as equally,
moderately, strongly, very strongly or extremely preferred. This technique allows
3

consideration of both objective and subjective attributes and provides a flexible and easy way
to understand and analyse complicated problems. Although the discrete scale of AHP has the
advantages of simplicity and ease of use, it has been generally criticized because of the use of
a discrete scale of one to nine which cannot handle the uncertainty and ambiguity present in
deciding the weights of different attributes (Chan and Kumar 2007). In some cases, experts
cannot compare different factors due to the lack of adequate information.
To address this limitation of AHP, some scholars have made use of fuzzy logic, which can be
employed to deal with uncertain parameters and information. Fuzzy logic resembles human
reasoning in its use of approximate information and uncertainty to support decision making
(Zadeh 1965). Fuzzy set theory has proven its advantages within vague, imprecise and
uncertain contexts. Since Van laarhoven and Pedrycz (1983) and Buckley (1985) present their
preliminary work in fuzzy AHP, it has been applied in many studies for different problem
environments (Weck et al. 1997; Chan and Kumar 2007; Huang et al. 2008; Abdi 2009; Faez
et al. 2009; Wang et al. 2012). Weck et al. (1997) used fuzzy AHP to evaluate alternative
production cycles and rank them in terms of the main objective set. Arshinder et al. (2007)
proposed a fuzzy AHP model to measure the effect of coordination mechanisms on the extent
of supply chain coordination. Chan and Kumar (2007) applied fuzzy AHP to investigate the
risk associated with various options for global supplier selection. Huang et al. (2008)
employed fuzzy AHP to make selection on different R&D projects. Faez et al. (2009)
combined fuzzy AHP with case-based reasoning approach for solving vendor selection
problems. Abdi (2009) employed fuzzy AHP to select different configuration in a
(reconfigurable) machine system. Based on the above, it can be noted that fuzzy AHP is
highly coupled with decision-making problems when involving multiple factor analysis.
Wang et al. (2012) applied fuzzy AHP to develop a risk assessment model that enables a
structured analysis of aggregative risk of implementing various green initiatives in the fashion
industry supply chain. The reason behind is obviously owing to the uncertain nature of the
problem. By incorporating fuzzy set theory with AHP, fuzzy AHP allows a more accurate
description of the decision-making process (Huang et al. 2008).While it is good to have
choices of flexibility strategies for managing supply chain risks, how to tailor them with their
various features and benefits is still a big challenge. To respond this challenge, a novel
approach is proposed in this paper for assessing supply chain risks and evaluating various
flexibility strategies in order to mitigate the risks.
3.
Evaluating flexibility strategies for mitigating supply chain risk
The approach proposed in this section focuses on establishing an Aggregative Flexibility
Decision Index (AFDI) which prioritises the available flexibility strategies for mitigating
supply chain risks. A step by step approach for is shown in the flowchart in Figure 1. Firstly,
AHP is applied to decompose the structure of complex decision problem into a hierarchical
sequence. It is then followed with the assessment of various types supply chain risk identified
in the hierarchical model through the use of fuzzy set theory. In addition, fuzzy extent
analysis is employed to acquire the priority ratings of different flexibility strategies for
mitigating supply chain risks. Finally, the aggregated evaluation is carried out and the result
can be used to construct the plan for implementing appropriate flexibility strategies.
Step 1: The hierarchical model
The proposed approach starts with defining the problem under study which is the evaluation
of flexibility strategies for mitigating supply chain risk. A system analysis is required to
identify all potential supply chain risks that the business could be exposed to. Tang and
Tomlin (2008) classified six types of supply chain risk: supply, process, demand, intellectual
4

property, behavioural, and political/social risks. These are major types of risk that occur
regularly. The hierarchical model is therefore constructed involving these six risk categories
as illustrated in Figure 1. In each risk category, potential risks are indentified and listed, and
information about risks may be collected from survey, interview, best practice, brainstorming,
etc. For example, risks associated with supply cost, supply quality and supply commitment
can be included in the supply risk category. The quality, time, and capacity risks associated
with in-bound and out-bound logistics, and in-house operations need to be identified and
listed in the process risk categories. Demand risks include risks associated with demand
uncertainty. Similarly, based on the specific supply chain environment, risks associated with
intellectual property, behavioural, and political/social risk categories need to be identified.
Step 1

Conduct a system analysis and construct

hierarchical model

Step 2

Use fuzzy set theory to assess level of supply

chain risks identified in the hierarchy

Step 3

Use fuzzy extent analysis to evaluate the

effective of alternative flexibility strategies for
mitigating supply chain risk and prioritise

Step 4

Estimate ADI of alternative flexibility

strategies and formulate implementation plan

Figure 1. Flowchart of the proposed approach

Goal

Criteria

Sub criteria
C11

Risk factors
S11

Alternative Flexibility
Strategies

P11

C1 Supply Risks
C1C1

S1C1
P1C1

C21

C2 Process Risks

C2C2

S21
P21
S2C2
P2C2

C31

S31
P31

C3 Demand Risks
C3C3

S3C3
P3C3

Manage supply
chain risks
C41

S41
P41

C4 Intellectual
Property Risks
C4C4

Flexibility
Strategy 1

Flexibility
Strategy 2

S4C1
P4C1

C51

S51
P51

Flexibility
Strategy n

C5 Behaviour Risks
C5C5

S5C5
P5C5

C61

C6 Political/social
Risks

C6C6

S61
P61
S6C6
P6C6

Figure 1. The hierarchical model for the evaluation of flexibility strategies

5

Step 2: Fuzzy set theory for the risk assessment

Since there may be a number of potential risks that have been identified at step 1 and
managing each risk will incur certain costs, it is necessary to assess the identified risks. In
many cases, a full systematic and quantitative risk assessment along the supply chain may not
be allowed due to constraints in data quality, time, or expertise. Moreover, uncertainty
problems cannot be expressed simply by using the concept of probability or crisp values.
Fuzzy set theory has been frequently used to solve problems of uncertain nature. It gives the
advantage of mathematically represent uncertainty and vagueness. Here, fuzzy set theory is
applied to give decision-makers a measure of the vulnerability within the supply chain.
A fuzzy number is a special fuzzy set, such that N = {(x, N(x), x R)}, where the value of
x lies on the real line R[0, 1]. Triangular Fuzzy Number (TFN) is employed to characterize
the fuzzy values of quantitative data and linguistic terms are used in approximate reasoning.
We define a fuzzy number N on R to be a triangular fuzzy number and the membership
function can be described as:
( x n1) /(n2 n1), x [n1, n2]

(1)
( x) = (n3 x) /(n3 n2), x [n2, n3]
0,
otherwise

where n1 n2 n3, n1 and n3 stand for the lower and upper value of the support of N
respectively, and n2 denotes to the most promising value.
In practice, companies have difficulties in evaluating these factors due to uncertainty and
lack of knowledge and information. Instead, risk assessors often rank these risk factors in
terms of linguistic variables such as high, moderate and low, etc. In this research, the
qualitative scales are expressed by TFNs to capture the vagueness in the linguistic subjectivity
of risk definitions. Table 1 describes this qualitative scaling system for the probability of risk
occurrence and the severity of its consquence. Two fuzzy numbers Np and Ns with
membership functions N p ( x ) and N s ( x ) represent the grades of these two factors
respectively. To determine the magnitude and intensity of the risk, the two factors are
multiplied to produce the risk assessment:
Risk = Probability of risk occurrence * the severity of the consequence
(2)
Grade of
A qualitative explanation of
risk
probability of risk (p)
1
Definitely low
2
Extremely low
3
Very low
4
Low
5
Slightly low
6
Middle
7
Slightly high
8
High
9
Very high
10
Extremely high
11
Definitely high

A qualitative explanation of
severity of the consequence (s)
Definitely unimportant
Extremely unimportant
Very unimportant
Unimportant
Slightly unimportant
Middle
Slightly important
Important
Very important
Extremely important
Definitely important

Triangular fuzzy
numbers (TFN)
(0.0, 0.0, 0.1)
(0.0, 0.1, 0.2)
(0.1, 0.2, 0.3)
(0.2, 0.3, 0.4)
(0.3, 0.4, 0.5)
(0.4, 0.5, 0.6)
(0.5, 0.6, 0.7)
(0.6, 0.7, 0.8)
(0.7, 0.8, 0.9)
(0.8, 0.9, 1.0)
(0.9, 1.0, 1.0)

Table 1. Linguistic classification of grades of risk factors

The product of two TFNs is also a fuzzy member, which is not necessarily a triangle. The
conversion of final combined fuzzy conclusion into a non-fuzzy form is called the
defuzzification. The centroidal method is often used for defuzzification, which is defined as:

g ( p, s) =

x N p N s ( x ) dx

( x ) dx

(3)

Here a and b are the lower and upper limits of the integral, respectively. We apply the above
methods to the computation of supply chain risks with fuzzy values. The grades of the two
risk factors for each variable can be determined by a risk assessor according to the analysis of
listed variables. A set of integers between 1 and 11 are assigned. With these descriptive scales,
the level of identified supply chain risks can be calculated.
Step 3: Evaluate the flexibility strategy with fuzzy extent analysis
After the risk assessment, alternative flexibility strategies are then evaluated with respect to
its effectiveness in mitigating individual risks. Here, fuzzy synthetic extent analysis method
(Chang 1996) is adopted to rank how effective one flexibility strategy is over another in
managing different risks.
As discussed in step 1, the evaluation framework has been developed (see Figure 1) for the
evaluation. Let n be the total number of alternative strategies at the bottom of the hierarchy
model. For each strategy Xi, we denote R(Xi) as the priority ratings in terms of effectiveness in
n
mitigating supply chain risks (where 0 R ( X i ) 1 and i =1 R ( X i ) = 1 for i=1, 2,n). When
evaluating each flexibility strategy, assessors can provide a precise numerical value, a
linguistic term or a fuzzy number. TFNs are used as a pairwise comparison scale for deriving
the priority ratings of different flexibility strategies. We define M = {(x, M(x), x R)} as a
TFN, where m1 m2 m3, m1 and m3 stand for the lower and upper value of the support of M
respectively, and m2 denotes to the most promising value. TFNs M1, M3, M5, M7 and M9 are
used to represent the pairwise comparison of decision variables from Equal to Absolutely
Better and TFNs M2, M4, M6 and M8 represent the middle preference values between them.
The membership functions of the TFNs Mz= (mz1, mz2, mz3), where z=1, 2,,9. Here mz1, mz2,
mz3 are the lower, middle and upper values of the fuzzy number mz respectively, where mz1,
and mz3 represent a fuzzy degree of judgement. The greater mz3-mz1 is the greater fuzziness of
the judgement. When mz1= mz2= mz3, the judgment is a non-fuzzy number.
Let O={o1, o2, on} be an object set, which is alternative flexibility strategies, and Q={q1, q2,
qm} be a goal set, which is the risks factors for all the identified supply chain risks to be
mitigated. When applying to the assessment, m equals to the number of identified supply
chain risks multiplying 2. According to the method of extent analysis (Chang, 1996), each
object is taken and extent analysis is performed for each goal respectively. Therefore, the m
m

1
2
extent analysis values for each object are obtained as: Mgi , Mgi , ., Mgi , i= 1, 2, , n,
j
where all the Mgi (j=1, 2,, m) are triangular numbers. The value of fuzzy synthetic extent

with respect to the ith object is defined as:

Si =

M
j =1

and

n
i =1

j
gi

M
j =1

j
gi

n
i =1

M gji
j =1

can be calculated as

1
1
1
= n
, n
, n

i=1 m3i i=1 m2i i=1 m1i

The degree of possibility of M 1 M 2 is defined as

M gji
i =1 j =1
n

(4)

(5)

[ (

)]

V (M 1 M 2 ) = sup min u M1 (x ), u M 2 ( y )
x y

(6)

When a pair (x, y) exists such that x y and u M 1 ( x ) = u M 2 ( y ) = 1 , then we have

V ( M 1 M 2 ) = 1 . Since M1 and M2 are convex fuzzy numbers we have that
V (M 1 M 2 ) = 1 if m1 2 m2 2 ,

V (M 1 M 2 ) = hgt ( M 1 M 2 ) = M1 (d ),

(7)

where d is the ordinate of the highest intersection point D between M1 and M 2 . When M1=
(m11, m12, m13) and M2 = (m21, m22, m23) then ordinate of D is computed by
V (M2 M1) = hgt(M1 M2 )
(8)
m11 m23
=
(m22 m23) (m12 m11)
To compare M1 and M2, both the values of V (M 1 M 2 ) and V (M 2 M 1 ) are required. The
degree possibility for a convex fuzzy number to be greater than k convex fuzzy numbers Mi (i
= 1, 2,,k) can be defined by
V (M M1, M 2 ,, M k )
(9)
= V [(M M1 )and(M M 2 )andand(M M k )]
= minV (M M i ), i = 1, 2,, k.
If d ( X i ) = min V (S i S k ) ,
(10)
For k=1, 2,, n,; k i , then the rating vector is given by
T
R = (d ( X 1 ), d ( X 2 ),, d ( X n ))
(11)
where Xi (i = 1, 2,., n) are n design alternatives. Via normalization, the normalized rating
vectors are:
T
R = (R( X 1 ), R( X 2 ),, R( X n ))
(12)
where R is a non-fuzzy number. Using the same approach, the comparative weights of criteria
can also be obtained. For the accuracy of the method, the consistency measure is also
performed to screen out inconsistency of responses. Since Mi is a triangular number, it has to
be defuzzified into a crisp number to compute the consistency index (CI).
Step 4: Prioritise the flexibility strategies
To make the final decision, it requires a systematic approach to incorporate all the elements in
the evaluation hierarchy into consideration. In the final stage of the evaluation, the alternative
designs are ranked with the Aggregated Flexibility Decision Index (AFDI) through
aggregated evaluation. An AFDI take the level of identified supply chain risks, the
comparative weights of risk categories (Wl), and the priority ratings of the flexibility strategies
for mitigating both factors of identified risks in the estimation.

AFDI = l =1Wl cl=1 g ( plc , slc )lc R plc ( X i ) + RS lc ( X i )

6

(13)
This index is useful in evaluating different flexibility strategies for mitigating supply chain
risk and the one with the highest AFDI value implies that the associated strategy should be
given the priority for the implementation.
4.
Numerical example
The case discussed here is concerned with a manufacturing company evaluating different
flexibility strategies for managing supply chain risks. The company wants to take into account
all the potential supply chain risks and formulate an implementation plan of available
flexibility strategies in order to mitigate the risks.
8

Step 1: The evaluation starts with identifying potential supply chain risks and analyzing
flexibility strategies that are able to mitigate them. The hierarchy of the evaluation model was
constructed, in which only selected criteria are shown here for demonstration purpose. As
illustrated in Table 2, the case example only focuses on three risk categories that are inherent
to all supply chains. In addition, Tang and Tomlin (2008) examined benefits of five different
flexibility strategies in the context of supply chain risk management. These five strategies
were employed in this research as alternative flexibility strategies for mitigating identified
supply chain risks.
Criteria

C1 Supply Risks

C2 Process Risks

C3 Demand Risks

Sub criteria

Risk factors

C11 Supply cost

C12 Supply quality
C13 Supplier commitment
C14 Supply reliability
C15 Supplier solvency
C21 Quality of inbound logistics
C22 Time of inbound logistics
C23 Capacity of inbound logistics
C24 Quality of in-house operation
C25Time of in-house operations
C26 Capacity of in-house operation
C27 Quality of outbound logistics
C28 Time of outbound logistics
C29 Capacity of outbound logistics
C31 Demand mix uncertainty
C32 Demand volume uncertainty

P11, S11
P12, S12
P13, S13
P14, S14
P15, S15
P21, S21
P22, S22
P23, S23
P24, S24
P25, S25
P26, S26
P27, S27
P28, S28
P29, S29
P31, S31
P32, S32

Alternative flexibility
strategies
X1 Flexible supply via multiple
suppliers
X2 Flexible supply via supply
contract
X3 Flexible product strategy via
postponement
X4 Flexible Manufacturing
X5 Flexible pricing via
responsive pricing

Table 2. An example of hierarchy structure for the evaluation of flexibility strategies

Step2: The risk of each sub-criterion can be assessed by considering the probability and
severity of the risk. The risk factors are expressed qualitatively and triangular fuzzy numbers
are used to define the qualitative scales before the estimated indices at higher levels. After
deciding the p and s values for each sub-criterion, the rate of risk g(p, s) was estimated
through the fuzzy method. The results for the case scenario are summarised in Table 3.
Sub-criterion
C11
C12
C13
C14
C15
C21
C22
C23

p
3
4
3
5
3
3
5
2

s
6
9
4
5
3
5
7
3

g(p, s)
0.105
0.245
0.065
0.165
0.045
0.125
0.245
0.025

Sub-criterion
C24
C25
C26
C27
C28
C29
C31
C32

p
2
4
3
3
5
4
4
6

s
8
4
5
6
7
5
6
8

g(p, s)
0.145
0.095
0.085
0.105
0.085
0.125
0.155
0.355

Table 3 Fuzzy based risk assessment for sub-criteria under the case scenario
Step 3: After the risk assessment, the fuzzy extent analysis method was used to assign priority
ratings to different flexibility strategies to be evaluated. Here, the criterion C11, supply cost, is
used as an example to evaluate the five alternative strategies. First, the fuzzy evaluation
matrix was constructed by the pairwise comparison of alternative strategies with respect to
their effect to mitigate the likelihood or the negative implications of risk using triangular
fuzzy numbers. The results are described in Table 4. Using the same approach, the priority
ratings of alternative flexibility strategies with respect to the two factors are obtained for all
identified supply chain risks, and the weights of risk categories are also calculated.

p11
Strategy 1
Strategy 2
Strategy 3
Strategy 4
Strategy 5

Strategy 1
(1, 1, 1)
(1/2, 2/3, 1)
(2/5, 1/2, 2/3)
(1/2, 1/2, 2/3)
(1/2, 2/3, 1)

Strategy 2
(1, 3/2, 2)
(1, 1, 1)
(1/2,2/3, 1)
(1/2, 2/3, 1)
(2/3, 2/3, 1)

Strategy 3
(3/2, 2, 5/2)
(1, 3/2, 2)
(1, 1, 1)
(1/2, 2/3, 1)
(1, 3/2, 2)

Strategy 4
(3/2, 2, 2)
(1, 3/2, 2)
(1, 3/2, 2)
(1, 1, 1)
(2/3, 1, 2)

Strategy 5
(1, 3/2, 2)
(1, 3/2, 3/2)
(1/2, 2/3, 1)
(1/2, 1, 3/2)
(1, 1, 1)

Rp11(Xi)
0.324
0.239
0.139
0.108
0.190

Table 4a. The fuzzy evaluation of flexibility strategy evaluation with respect to p11
s11
Strategy 1
Strategy 2
Strategy 3
Strategy 4
Strategy 5

Strategy 1
(1, 1, 1)
(1/2, 2/3, 1)
(1/3, 2/5, 1/2)
(1/3, 2/5, 1/2)
(2/5,1/2,2/3)

Strategy 2
(1, 3/2, 2)
(1, 1, 1)
(2/5,1/2, 2/3)
(2/5, 1/2, 2/3)
(1/2, 2/3,1)

Strategy 3
(2, 5/2, 3)
(3/2, 2, 5/2)
(1, 1, 1)
(1/2, 2/3, 2)
(2/3,1, 2)

Strategy 4
(2, 5/2, 3)
(3/2, 2, 5/2)
(1/2, 3/2, 2)
(1, 1, 1)
(1, 3/2, 2)

Strategy 5
(3/2, 2, 5/2)
(1, 3/2, 2)
(1/2, 1, 3/2)
(1/2, 2/3,1)
(1, 1, 1)

Rs11(Xi)
0.398
0.288
0.101
0.058
0.154

Table 4b. The fuzzy evaluation of flexibility strategy evaluation with respect to s11
Step 4: The AFDI of each flexibility strategies can then be calculated through Equation (13).
By aggregating the level of supply chain risks, priority ratings of each strategy with respect to
both factors of identified risks, and the weights of risk categories, the highest value of AFDI
gives the idea about which strategies that the manufacturing company should prioritise. The
results are illustrated in Figure 2, in which the Strategy 4, manufacturing flexibility, has the
highest AFDI.
0.320
AFDI

0.300
0.280
0.260

0.295
0.270

0.306
0.277

0.264

0.240
X1

X2

X3

X4

X5

Alternative flexibility strategies

Figure 2. AFDI values for alternative flexibility strategies

5.
Discussion of the results.
The AFDI values displayed in Figure 2 give a clear indication of which flexibility strategies
the company should focus on in order to mitigate the overall risk level of its supply chain.
Such analysis is useful to formulate a proper plan to implement flexibility strategies to
enhance supply chain resiliency. We also notice that similar AFDI values were obtained for
some strategies although they may be more effective in addressing specific supply chain risks
than other strategies. It is due to the fact that AFDI takes in consideration all the potential
risks and the usefulness of individual flexibility strategy to mitigate these risks. As illustrated
in Figure 3, even with the highest AFDI value, flexible manufacturing (X4) is not as effective
as flexible pricing via responsive pricing (X5) to mitigate the most significant risk (C32) the
case company is facing caused by volume uncertainty of the demand. This information is
valuable for formulate the implementation plan as companies should select the flexibility
strategies that not only mitigate the supply chain risks collectively but also those strategies
address their immediate challenges. Furthermore, the analysis results illustrated in Figure 3
shows that, for some supply chain risks, flexibility strategies are more effective in mitigating
the severity of the consequence of risks than the probability of their occurrences.

10

X2

X3

X4

X5

X1

Priority ratings

Priority ratings

X1
0.450
0.400
0.350
0.300
0.250
0.200
0.150
0.100
0.050
0.000

X2

X3

X4

X5

0.450
0.400
0.350
0.300
0.250
0.200
0.150
0.100
0.050
0.000

C11 C12 C13 C14 C15 C21 C22 C23 C24 C25 C26 C27 C28 C29 C31 C32

C11 C12 C13 C14 C15 C21 C22 C23 C24 C25 C26 C27 C28 C29 C31 C32

Supply chain risks

Supply chain risks

Figure 3a. Analysis of flexibility strategies for

mitigating the probability of supply chain risks.

Figure 3b. Analysis of flexibility strategies for

mitigating the severity of supply chain risks.

6.
Conclusion
This paper presents an effective approach that enables to perform structured analysis of
supply chain risks and evaluate different flexibility strategies for mitigating these risks. The
novelty of the model lies in the fact that an analytical tool enables the specific business
preferences concerning supply chain risks to be taken into consideration in making the
strategy choice. It offers a more precise and accurate analysis by incorporating the uncertainty
that is encountered in a fuzzy environment. Nevertheless, there are some limitations which
can lead to further research opportunities. For instance, the research only focuses on the
evaluation of different flexibility strategies. It did not analyse the level of flexibility required
for each strategy. Since extra level of flexibility may require additional investment, it is
important to have such analysis in the future. Furthermore, this research only evaluates
individual strategies for mitigating supply chain risks. Another future research direction is to
examine the benefits of a combination of different strategies.
7.

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