A Continuous‐Review Inventory Model with Disruptions at Both Supplier and Retailer

Lian Qi · Zuo‐Jun Max Shen · Lawrence Snyder

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Supply Chain and Inventory Management Sustainable Supply Chain Management Supply Chain Resilience and Risk Management

Abstract

We consider a continuous‐review inventory problem for a retailer who faces random disruptions both internally and externally (from its supplier). We formulate the expected inventory cost at this retailer and analyze the properties of the cost function. In particular, we show that the cost function is quasi‐convex and therefore can be efficiently optimized to numerically find the optimal order size from the retailer to the supplier. Computational experiments provide additional insight into the problem. In addition, we introduce an effective approximation of the cost function. Our approximation can be solved in closed form, which is useful when the model is embedded into more complicated supply chain design or management models.

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References

1964Analysis of Inventory Systems.2006On the Value of Mitigation and Contingency Strategies for Managing Supply Chain Disruption Risks 2001Supply Chain Management under the Threat of International Terrorism 2003A Joint Location-Inventory Model 2007A Newsvendor’s Procurement Problem when Suppliers Are Unreliable 2007The importance of decoupling recurrent and disruption risks in a supply chain 1991Future supply uncertainty in EOQ models 2010The Effect of Supply Disruptions on Supply Chain Design Decisions

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2011Joint inventory-location problem under the risk of probabilistic facility disruptions 2017Advancements in continuous approximation models for logistics and transportation systems: 1996–2016 2016A quantitative model for disruption mitigation in a supply chain 2018Resilient supply chain design and operations with decision‐dependent uncertainty using a data‐driven robust optimization approach 2014Design of Resilient Supply Chains with Risk of Facility Disruptions

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