Cascading disruptions: Impact of modularity and nexus supplier predictions

Abstract

Disruptions can start at one supplier in the supply network and ripple through, impacting other suppliers and firms, known as cascading disruptions. This research analyzes the effect of supply network modularity on cascading disruptions. Modularity measures the degree to which a supply network can be divided into self-contained sub-networks and has different effects on supply network resilience. A highly modular supply network prevents cascading disruptions from spreading through the whole network because of the lack of bridges between modules (lack of inter-module connectivity). Hence, the size of cascading disruptions—measured by the number of suppliers impacted by a cascading disruption—in highly modular supply networks tends to be smaller than the size of cascading disruptions in less modular supply networks. However, the high level of internal connectivity within a module (excessive intra-module connectivity) acts as an incubator for cascading disruptions. This means a small disruption in a modular network may impact fewer suppliers (i.e., smaller cascading size) but with higher severity measured by service level. Finally, building upon the theoretical concept of nexus suppliers, this research proposes a new predictive model to identify the operational nexus suppliers whose disruptions would considerably impact focal firms' operations. The model's accuracy is empirically tested on real-world global supply networks involving 2598 unique firms and suppliers across 51 countries and 111 industries. The model identifies nexus suppliers with 95% accuracy, allowing managers and policymakers to plan for mitigation strategies proactively.