Got organic milk? Joint inventory model with supply uncertainties and partial substitution

Abstract

We study the joint inventory problem for two partially substitutable (organic and regular) products with different levels of supply reliability. Increasing substitution rate results in a decreased organic order but an increased regular order, as the regular product becomes an effective substitute during the organic product's stock-out. Higher disruption risk increases the order size of both products, but higher yield uncertainty only increases the organic order size whereas the regular order size decreases or remains unchanged.