Modeling the Value of Flexibility

Abstract

In this chapter, we present different stylized quantitative models to quantify the benefit of adding flexibility to the supply chain in terms of mitigating supply chain risk. Our results suggest that a firm can obtain significant value from implementing various flexibility strategies with only a limited amount of flexibility. In other words, to reduce supply chain risks, companies need to make their supply chains only slightly more flexible. Even without hard data, our analysis can increase a firm’s confidence for making small investments implementing the flexibility strategies described in Chapter 7.