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The purpose of this paper is to provide a decision-making tool achieving robust supply flow by incorporating strategic stock and contingent sourcing in mitigating minor and major disruptions.

The authors consider a firm with two suppliers where the main supplier is cost-effective but prone to disruptions and the back-up supplier is reliable but expensive due to built-in volume flexibility. In order to incorporate the randomness associated with disruptions and the available capacity during response time in the decision-making stage, the authors present a multi-stage robust optimization (RO) model. The design problem is to determine optimal strategic stock level and response speed of volume-flexible back-up supplier in order to achieve a robust supply flow.

The results show that the quality of optimal solution is improved by considering the randomness associated with available capacity. In addition, incorporating congestion effects allows identifying the appropriate level of supply chain responsiveness, thus improving the overall performance.

The novelty of the proposed model is the consideration of both strategic stock and volume flexibility in maintaining a robust supply performance while incorporating response capability and congestion effects.