Abstract
Recent disruptions to global supply chains have underscored the importance of supply chain resilience, prompting firms to increasingly adopt multi-sourcing strategies. The supplier selection process is key to ensuring secondary suppliers enhance supply chain resilience, yet most literature focuses on individual supplier resilience in isolation. This risks multi-sourcing from suppliers that are exposed to the same exogenous threats—such as being in the same city (natural disasters) or country (trade or currency risks). This paper explores a portfolio-based approach to supplier selection—identifying an optimal mix of suppliers for a material to minimize overall risk. A resilience hedging score was developed to quantify and compare the risk hedging provided by potential secondary suppliers. The resilience hedging score is an extension of Gower's Distance and utilizes pairwise comparison of categorical and numerical supplier risk attributes, as well as a weighted consideration of geographic distance between suppliers. For our sponsor company, the resilience hedging score proved effective at recommending secondary suppliers with very dissimilar risk profiles to the primary supplier. It is relatively simple to deploy in a business, scalable, and easily explainable, potentially allowing firms to quickly implement resilient multi-sourcing strategies.
