Canan Gunes Corlu, Bahar Biller, Elliot Wolf-Stokes, Enver Yücesan
This paper examines stocking decisions in the presence of catastrophic disruptions, which are different in nature from operational risks as their likelihood is low but their consequences could be devastating. Motivated by the rising frequency of catastrophic events and their impact on supply chains, we consider a stylized model in which a firm manages two stocking locations: a primary stocking location from where customer demand is met and a secondary stocking location that serves as a backup to the primary location and transfers stock to the primary location when needed. When a location is hit by a catastrophic event, it loses a fraction of its inventory and a recovery cost is incurred in that location. We combine the two-stage newsvendor model that captures demand uncertainty costs with catastrophe models that capture not only the cost of supply disruption but also the cost of recovery. We stress-test the supply chain by introducing disruptive events and extreme conditions and obtain insights about the conditions under which a secondary stocking location would be desirable for the firm. © The Author(s), under exclusive license to Springer Nature Switzerland AG 2025.
Metropolitan College, Boston University, Boston, 02215, MA, United States; SAS Institute, Cary, 27513, NC, United States; The Chemours Company, Wilmington, DE, United States; INSEAD, 1 Ayer Rajah Avenue, Singapore, Singapore
