Abstract
Supply disruption is a common phenomenon in business activities. For the case where the supply disruption is predictable, the retailer should make an emergency procurement beforehand to decrease the inventory cost. For the scenario such that the happening time of the supply disruption obeys a certain common probability distribution but the ending time of the supply disruption is deterministic, based on minimizing the inventory cost and under two possible procurement strategies, we establish an emergency procurement optimization model. By considering the model solution in all cases, we establish a closed-form solution to the optimization model and provide an optimal emergency procurement policy to the retailer. Some numerical experiments are made to test the validity of the model and the effect of the involved parameters on the emergency procurement policy.
Highlights
In the modern market, supply chain disruptions usually occur due to some unforeseen triggering events and jeopardize the flow of material and normal business activities significantly [1,2,3,4,5,6,7,8]
From the numerical experiments on the involved parameter sensitivity analysis, we can see that the variation of holding cost h, demand rate λ, and deadline time of the supply disruption t1 have a larger influence on the emergency ordering policy, while the stockout penalty p has less influence on the emergency ordering policy
This paper considered the emergency procurement problem with an impending supply disruption, which can be encountered in reality
Summary
Supply chain disruptions usually occur due to some unforeseen triggering events and jeopardize the flow of material and normal business activities significantly [1,2,3,4,5,6,7,8]. Yang, and Zhang [31] considered the scenario where the manufacturer and the retailer were vertically integrated with demand disruptions, and derived conditions under which the maximum profit can be achieved, which indicates that the optimal production quantity has some robustness under a demand disruption in both centralized and decentralized dual channel supply chains. We consider the emergency procurement mechanism with an impending supply disruption such that the happening time of the supply disruption is random but the ending time of the event is deterministic. This means that the retailer should determine the emergency ordering time and emergency ordering quantity For this problem, based on minimizing the retailer’s inventory cost, we establish an emergency procurement optimization model.
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