IDEAS home Printed from https://ideas.repec.org/a/eee/transe/v90y2016icp51-68.html
   My bibliography  Save this article

Transportation disruption risk management: business interruption insurance and backup transportation

Author

Listed:
  • Zhen, Xueping
  • Li, Yongjian
  • Cai, Gangshu (George)
  • Shi, Dan

Abstract

Business interruption (BI) insurance and backup transportation have been widely used in distribution centers’ daily risk management. If disruption occurs, a firm (distribution center) can exert efforts to resume its transportation, although its unit transportation cost during the recovery process is uncertain. This paper studies how ex ante BI insurance can affect the ex post transportation recovery, and compares BI insurance with the ex post action—backup transportation. We investigate four strategies: basic strategy, BI insurance strategy, backup transportation strategy, and mixed strategy (integration of the last two). The distribution center that seeks the least profit loss prefers the mixed strategy to other three strategies. However, the mixed strategy might in turn require longer transportation recovery time than the BI insurance strategy. The BI insurance and transportation recovery are complementary, but the BI insurance and backup transportation are substitutable, the backup transportation and the transportation recovery are also substitutable. We also find that the choice of BI insurance strategy and the backup transportation strategy depends on transportation market, insurance market and distribution center’s operational environments.

Suggested Citation

  • Zhen, Xueping & Li, Yongjian & Cai, Gangshu (George) & Shi, Dan, 2016. "Transportation disruption risk management: business interruption insurance and backup transportation," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 90(C), pages 51-68.
    • Handle: RePEc:eee:transe:v:90:y:2016:i:c:p:51-68
    DOI: 10.1016/j.tre.2016.01.005
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1366554516000053
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.tre.2016.01.005?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Li, Xiaopeng & Ouyang, Yanfeng & Peng, Fan, 2013. "A supporting station model for reliable infrastructure location design under interdependent disruptions," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 60(C), pages 80-93.
    2. Hou, Jing & Zeng, Amy Z. & Zhao, Lindu, 2010. "Coordination with a backup supplier through buy-back contract under supply disruption," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 46(6), pages 881-895, November.
    3. Ahmadi-Javid, Amir & Seddighi, Amir Hossein, 2013. "A location-routing problem with disruption risk," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 53(C), pages 63-82.
    4. Lingxiu Dong & Brian Tomlin, 2012. "Managing Disruption Risk: The Interplay Between Operations and Insurance," Management Science, INFORMS, vol. 58(10), pages 1898-1915, October.
    5. Sammi Y. Tang & Haresh Gurnani & Diwakar Gupta, 2014. "Managing Disruptions in Decentralized Supply Chains with Endogenous Supply Process Reliability," Production and Operations Management, Production and Operations Management Society, vol. 23(7), pages 1198-1211, July.
    6. Wilson, Martha C., 2007. "The impact of transportation disruptions on supply chain performance," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 43(4), pages 295-320, July.
    7. Zhibin (Ben) Yang & Göker Ayd{i}n & Volodymyr Babich & Damian R. Beil, 2009. "Supply Disruptions, Asymmetric Information, and a Backup Production Option," Management Science, INFORMS, vol. 55(2), pages 192-209, February.
    8. Tang, Christopher S., 2006. "Perspectives in supply chain risk management," International Journal of Production Economics, Elsevier, vol. 103(2), pages 451-488, October.
    9. Chen, Qi & Li, Xiaopeng & Ouyang, Yanfeng, 2011. "Joint inventory-location problem under the risk of probabilistic facility disruptions," Transportation Research Part B: Methodological, Elsevier, vol. 45(7), pages 991-1003, August.
    10. Brian Tomlin, 2006. "On the Value of Mitigation and Contingency Strategies for Managing Supply Chain Disruption Risks," Management Science, INFORMS, vol. 52(5), pages 639-657, May.
    11. Zhang, Ying & Qi, Mingyao & Lin, Wei-Hua & Miao, Lixin, 2015. "A metaheuristic approach to the reliable location routing problem under disruptions," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 83(C), pages 90-110.
    12. Terry A. Taylor, 2002. "Supply Chain Coordination Under Channel Rebates with Sales Effort Effects," Management Science, INFORMS, vol. 48(8), pages 992-1007, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Qin, Xuwei & Shao, Lusheng & Jiang, Zhong-Zhong, 2020. "Contract design for equipment after-sales service with business interruption insurance," European Journal of Operational Research, Elsevier, vol. 284(1), pages 176-187.
    2. He, Shan & Dai, Ying & Ma, Zu-Jun, 2023. "To offer or not to offer? The optimal value-insured strategy for crowdsourced delivery platforms," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 173(C).
    3. Kelei Xue & Ya Xu & Lipan Feng, 2018. "Managing Procurement for a Firm with Two Ordering Opportunities under Supply Disruption Risk," Sustainability, MDPI, vol. 10(9), pages 1-32, September.
    4. Gebhardt, Maximilian & Spieske, Alexander & Kopyto, Matthias & Birkel, Hendrik, 2022. "Increasing global supply chains’ resilience after the COVID-19 pandemic: Empirical results from a Delphi study," Journal of Business Research, Elsevier, vol. 150(C), pages 59-72.
    5. Wang, Haijun & Tan, Jie & Guo, Shuojia & Wang, Shenhao, 2018. "High-value transportation disruption risk management: Shipment insurance with declared value," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 109(C), pages 293-310.
    6. Henry Ataburo & Getrude Effah Ampong & Dominic Essuman, 2024. "Developing operational resilience to navigate transportation disruptions: the role and boundaries of efficiency priority," Annals of Operations Research, Springer, vol. 340(2), pages 723-755, September.
    7. Nguyen, Son & Chen, Peggy Shu-Ling & Du, Yuquan & Shi, Wenming, 2019. "A quantitative risk analysis model with integrated deliberative Delphi platform for container shipping operational risks," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 129(C), pages 203-227.
    8. Giménez-Palacios, Iván & Parreño, Francisco & Álvarez-Valdés, Ramón & Paquay, Célia & Oliveira, Beatriz Brito & Carravilla, Maria Antónia & Oliveira, José Fernando, 2022. "First-mile logistics parcel pickup: Vehicle routing with packing constraints under disruption," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 164(C).
    9. Wu, Qianni & Chiu, Chun-Hung, 2023. "The impacts of carbon insurance on supply chain and environment considering technology risk under cap-and-trade mechanism," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 180(C).
    10. Liu, Zhongyi & Li, Mengyu & Lei, Ying & Zhai, Xin, 2022. "A joint strategy based on ordering and insurance for mitigating the effects of supply chain disruption on risk-averse firms," International Journal of Production Economics, Elsevier, vol. 244(C).
    11. Kelei Xue & Yongjian Li & Xueping Zhen & Wen Wang, 2020. "Managing the supply disruption risk: option contract or order commitment contract?," Annals of Operations Research, Springer, vol. 291(1), pages 985-1026, August.
    12. Shao, Xiao-Feng, 2018. "Production disruption, compensation, and transshipment policies," Omega, Elsevier, vol. 74(C), pages 37-49.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dmitry Ivanov & Alexandre Dolgui & Boris Sokolov & Marina Ivanova, 2017. "Literature review on disruption recovery in the supply chain," International Journal of Production Research, Taylor & Francis Journals, vol. 55(20), pages 6158-6174, October.
    2. Aldrighetti, Riccardo & Battini, Daria & Ivanov, Dmitry & Zennaro, Ilenia, 2021. "Costs of resilience and disruptions in supply chain network design models: A review and future research directions," International Journal of Production Economics, Elsevier, vol. 235(C).
    3. Li, Guo & Zhang, Lijun & Guan, Xu & Zheng, Junjun, 2016. "Impact of decision sequence on reliability enhancement with supply disruption risks," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 90(C), pages 25-38.
    4. Ying Wu & Haiyan Li & Qinglong Gou & Jibao Gu, 2017. "Supply chain models with corporate social responsibility," International Journal of Production Research, Taylor & Francis Journals, vol. 55(22), pages 6732-6759, November.
    5. Jie Wu & Zhixin Chen & Xiang Ji, 2020. "Sustainable trade promotion decisions under demand disruption in manufacturer-retailer supply chains," Annals of Operations Research, Springer, vol. 290(1), pages 115-143, July.
    6. Li, Yongjian & Zhen, Xueping & Qi, Xiangtong & Cai, Gangshu (George), 2016. "Penalty and financial assistance in a supply chain with supply disruption," Omega, Elsevier, vol. 61(C), pages 167-181.
    7. Yi Tao & Loo Hay Lee & Ek Peng Chew, 2016. "Quantifying the Effect of Sharing Information in a Supply Chain Facing Supply Disruptions," Asia-Pacific Journal of Operational Research (APJOR), World Scientific Publishing Co. Pte. Ltd., vol. 33(04), pages 1-28, August.
    8. Liu, Zhongyi & Li, Mengyu & Zhai, Xin, 2022. "Managing supply chain disruption threat via a strategy combining pricing and self-protection," International Journal of Production Economics, Elsevier, vol. 247(C).
    9. Liu, Zhongyi & Li, Mengyu & Lei, Ying & Zhai, Xin, 2022. "A joint strategy based on ordering and insurance for mitigating the effects of supply chain disruption on risk-averse firms," International Journal of Production Economics, Elsevier, vol. 244(C).
    10. Zhao, Lima & Huchzermeier, Arnd, 2015. "Operations–finance interface models: A literature review and framework," European Journal of Operational Research, Elsevier, vol. 244(3), pages 905-917.
    11. Kelei Xue & Ya Xu & Lipan Feng, 2018. "Managing Procurement for a Firm with Two Ordering Opportunities under Supply Disruption Risk," Sustainability, MDPI, vol. 10(9), pages 1-32, September.
    12. Mishra, Deepa & Sharma, R.R.K. & Kumar, Sameer & Dubey, Rameshwar, 2016. "Bridging and buffering: Strategies for mitigating supply risk and improving supply chain performance," International Journal of Production Economics, Elsevier, vol. 180(C), pages 183-197.
    13. Jie Xiang & Juliang Zhang & T. C. E. Cheng & Jose Maria Sallan & Guowei Hua, 2019. "Efficient Multi-Attribute Auctions Considering Supply Disruption," Asia-Pacific Journal of Operational Research (APJOR), World Scientific Publishing Co. Pte. Ltd., vol. 36(03), pages 1-28, June.
    14. Hosseini, Seyedmohsen & Ivanov, Dmitry & Dolgui, Alexandre, 2019. "Review of quantitative methods for supply chain resilience analysis," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 125(C), pages 285-307.
    15. Ivanov, Dmitry, 2020. "Predicting the impacts of epidemic outbreaks on global supply chains: A simulation-based analysis on the coronavirus outbreak (COVID-19/SARS-CoV-2) case," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 136(C).
    16. Wang, Haijun & Tan, Jie & Guo, Shuojia & Wang, Shenhao, 2018. "High-value transportation disruption risk management: Shipment insurance with declared value," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 109(C), pages 293-310.
    17. Kelei Xue & Yongjian Li & Xueping Zhen & Wen Wang, 2020. "Managing the supply disruption risk: option contract or order commitment contract?," Annals of Operations Research, Springer, vol. 291(1), pages 985-1026, August.
    18. Weijun Xie & Yanfeng Ouyang & Sze Chun Wong, 2016. "Reliable Location-Routing Design Under Probabilistic Facility Disruptions," Transportation Science, INFORMS, vol. 50(3), pages 1128-1138, August.
    19. Jingfu Huang & Gaoke Wu & Yiju Wang, 2021. "Retailer’s Emergency Ordering Policy When Facing an Impending Supply Disruption," Sustainability, MDPI, vol. 13(13), pages 1-21, June.
    20. Guertler, Benjamin & Spinler, Stefan, 2015. "When does operational risk cause supply chain enterprises to tip? A simulation of intra-organizational dynamics," Omega, Elsevier, vol. 57(PA), pages 54-69.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:transe:v:90:y:2016:i:c:p:51-68. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/wps/find/journaldescription.cws_home/600244/description#description .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.