When Shortages Lead to Export Restrictions: A Computational Study

Abstract

Globalization has enabled companies to leverage cost efficiencies; however, it has increased exposure to disruption risks that threaten supply stability. Among these, export bans have emerged as a systemic challenge, often arising as a secondary effect of conventional supply capacity disruptions. The pharmaceutical industry is particularly vulnerable to bans because of the criticality of keeping life-saving medications available, yet such disruptions also jeopardize patient health globally as well as challenge company operations. This paper proposes a supply chain design model that incorporates the relationship between conventional disruption risks (quality-related capacity failures and natural disasters) and export bans that may be induced when the drug is projected to be in short supply. The model is a two-stage stochastic mixed integer program, where the systemic setting yields a second-stage problem with one binary variable and continuous variables. The structure motivates the study of three tailored solution methods: the Alternating Integer L-shaped Cut, Alternating Disjunctive Cut, and Alternating Bilinear Cut methods. In the nearly-continuous second stage context, the Alternating Integer L-shaped cuts perform best. Using an oncology drug case study, we study effects of systemic, induced risk and quantify the value of incorporating disruptions into supply chain design.