Canan Gunes Corlu, Bahar Biller, Elliot Wolf, Enver Yucesan
Initiatives like lean manufacturing, pooling, and postponement have been effective in mitigating the cost-service trade-off by maintaining high levels of service while reducing system inventories. However, such initiatives exacerbate supply chain disruptions during a catastrophic event, thereby creating a new trade-off between robustness during disruptions and efficiency during normal operations. We evaluate stocking decisions in the presence of operational disruptions, which represent different risks from those associated with demand uncertainties as they stop production flow and typically persist longer. Operational disruptions can therefore be much more devastating though their likelihood of occurrence may be low. Using stochastic simulation, we combine the newsvendor and order-up-to models capturing demand uncertainty costs with catastrophe models capturing not only the cost of supply disruption, but also the cost of recovery, to obtain insights for managing inventory under disruption risk. © 2020 IEEE.
Boston University, Metropolitan College, Boston, 02215, MA, United States; Sas Institute Inc., Analytics Center of Excellence, 27513, NC, United States; The Chemours Company, Risk Management, Wilington, 12097, DE, United States; Insead, Technology and Operations Management Area, Singapore
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