Optimal Emergency Order Policy for Supply Disruptions in the Semiconductor Industry

Abstract

Semiconductor materials are strategic materials in global manufacturing. Affected by supply chain risks, semiconductor supply shortages have brought unprecedented pressure on global supply chain security, such as car manufacturers and electrical and electronic production stopping production among others, resulting in economic losses. When supply disruption occurs, retailers typically place emergency orders to reduce unexpected costs caused by the event. This study examines the emergency ordering problem faced by retailers under supply disruptions in the semiconductor industry, using the supply of semiconductor chips from Renesas Electronics to Toyota as an example. For this, we establish an emergency ordering optimization model based on retailers' profit maximization and solve it by modelling analysis. The model's validity and the impact of parameters on emergency ordering policy are verified by numerical experiments. The experimental findings demonstrate that: first, the retailer should consider the impact of consumer demand, alongside market price volatility, and make reasonable arrangements for the replenishment time and quantity. Second, at a higher partial backordering rate, the retailer makes larger adjustments for partial backordering by increasing the backordering quantity and making more profits. Third, in the case of shortages, the greater the shortage penalty cost is, the lower the profits the retailer gains, making it necessary to develop a timely replenishment strategy to prevent losses caused by shortages in semiconductor supply chain systems. Thus, in the event of a disruption, retailers should ensure that their order quantities not only meet market demand but also consider inventory holding costs while judiciously determining the number of emergency orders. This study addresses real-world scenarios in the semiconductor industry's supply disruptions and aids managers in formulating optimal emergency ordering strategies to maximize profits and ensure business continuity.