Strategy decision of business interruption insurance and emergency supply strategy based on supply disruptions
Abstract: Recent years have
witness the pervasive supply disruptions and their impacts on supply chain
performance. It is significant for enterprises to adopt comprehensive measures
to cope with supply disruptions. The purpose of this study is to investigate
how BI insurance make up the shortage of emergency supply and affect the
expected profit of enterprises.
Design/methodology: This study develops the penalty cost function on the
basic of the financial costs caused by the interruption losses, introduces
variables of BI insurance and operational measures, establishes the profit
model with BI insurance or not.
Findings: Through the proof and analysis, it is demonstrated that BI
insurance can mitigate the adverse effect of the increasing cost for expected
profit. And this study finds that the value of BI insurance is higher when
interruption probability is lower and penalty coefficient is higher.
Originality/value: In this study, it is investigated that the impact of
business interruption (BI) insurance on supply disruptions and its
complementary value against the higher purchase cost of emergency sourcing
strategy. BI insurance is an efficient measure for supply interruption and
should be adopted correctly to play a role in managing supply disruption risk.
Author: Xinjun Li, Lijie Wang
Journal Code: jptindustrigg150046
