Demand-side reactive strategies for supply disruptions in a multiple-product system

Abstract

Abstract This research examines demand-side reactive strategies for supply disruption in a multiple assemble-to-order system. We consider an assemble-to-order system with two substitute products where the demand is price-sensitive and disruption-sensitive. Two different supply disruption situations are examined: disruption of the low-value component and disruption of the high-value component. We propose and compare the performance of four reactive strategies for managing supply disruptions, namely, the backordering strategy, the upgrading/downgrading strategy, the compensation strategy, and the mixed strategy. We find that the compensation strategy and the mixed strategy can keep more customers than the backordering strategy and the upgrading strategy during the supply disruption of the low-value product. For the disruption of the high-value product, the total number of customers keeps constant. But it does lead to the reallocation of customers among the products. We find that the mixed strategy is the best reactive strategy and the backordering strategy is the worst one among the four reactive strategies.