Abstract
Major events such as the COVID-19 pandemic, Olympic Games, and G20 Summit bring about supplier disruption risks and challenges to supply chain management. To help deal with these risks, a virtual dual-sourcing production-inventory system can be deployed. In this paper, we study such a system which consists of a raw material supplier, a manufacturer, and a virtual dual-sourcing contingency supplier. The manufacturer needs to determine the production, procurement, and inventory plan of raw materials. When its supplier is interrupted, the manufacturer may need to adjust the production and inventory plan and work with the contingency supplier. We develop a system dynamics method to simulate the operations in this production-inventory system to identify the approximately optimal order-up-to-level inventory policies. We find that the virtual dual production-inventory strategy can be the optimal contingency policy to deal with supplier dynamic disruption risks. Furthermore, for disruption risk with low frequency and long duration, the manufacturer should increase the safety inventory level before the disruption. Otherwise, it should increase the safety inventory level in every cycle.
Highlights
As the COVID-19 pandemic of 2020 continues to unfold, lockdowns of countries and cities have caused severe disruptions in various supply chains such as healthcare and food supply chains [1]. is led to supply disruption for essential products such as food, medical testing kits, and PPEs [2]
This study models a virtual dual-sourcing production-inventory system under predictable and repeated dynamic disruption risks. is system consists of a raw material supplier, a manufacturer, and a virtual dual-sourcing contingency supplier. e manufacturer needs to determine its production, procurement, and inventory plan
To analyse the optimal safety inventory polices, we set the three scenarios of dynamic disruption modes as follows: (1) Disruption mode A ((m, k) (20, 3)): it means that the system is disrupted 20 times in one cycle and lasts 3 cycles due to one major event
Summary
As the COVID-19 pandemic of 2020 continues to unfold, lockdowns of countries and cities have caused severe disruptions in various supply chains such as healthcare and food supply chains [1]. is led to supply disruption for essential products such as food, medical testing kits, and PPEs [2]. Is led to supply disruption for essential products such as food, medical testing kits, and PPEs [2]. In these supply chains, a recovery and resiliency plan should be considered for supply-side disruptions. Large-scale urban events such as G20 and Summer Olympics games can cause supply disruption risks to firms’ normal operations including raw material procurement, production, and distribution [3]. To deal with these disruption risks, firms often build extra inventory or maintain backup suppliers. In March 2011, after the earthquake and tsunami in Japan, the production and supply of automobile parts in Japan was severely disrupted. is resulted in vast loss to these automobile companies in terms of both profit and reputation [5]
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