A continuous-review inventory model with random disruptions at the primary supplier

Lian Qi

Research output: Contribution to journalArticlepeer-review

71 Scopus citations

Abstract

We consider a continuous-review inventory problem for a retailer facing constant customer demand for a single product. This retailer is assumed to follow the well known and widely used order-up-to policy in making replenishment decisions, and can order from two suppliers who differ in reliability and costs. Supplier 1, the primary supplier, is cheaper, but is subject to random disruptions. Supplier 2, the backup supplier or the contingent source, is more expensive, but is perfectly reliable. If Supplier 1 is available when the inventory level at the retailer reaches the reorder point, the retailer orders from Supplier 1. Otherwise, it will wait for a while to see if Supplier 1 can recover from the disruption quickly. If so, it will still get replenishment from Supplier 1 to take advantage of its lower charge. However, the retailer will reroute to the backup supplier if Supplier 1 still does not recover from the disruption when the cap of waiting (the maximal waiting time of the retailer if Supplier 1 is disrupted) is reached. We analytically study the optimal sourcing and replenishment decisions at the retailer, and the impacts of various problem parameters on the optimal decisions. We also conduct extensive numerical experiments to compare different sourcing and replenishment decisions the retailer can make and get further managerial insights into the problem.

Original languageEnglish (US)
Pages (from-to)59-74
Number of pages16
JournalEuropean Journal of Operational Research
Volume225
Issue number1
DOIs
StatePublished - Feb 16 2013

All Science Journal Classification (ASJC) codes

  • Computer Science(all)
  • Modeling and Simulation
  • Management Science and Operations Research
  • Information Systems and Management

Keywords

  • Contingent sourcing
  • Inventory
  • Supply chain management
  • Supply disruptions

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