A robust optimization approach for an inventory problem with emergency ordering and product substitution in an uncertain environment: A case study in pharmaceutical industry

Abstract

Abstract. This paper presents a multi-product, multi-period inventory problem in an uncertain environment where the main suppliers are prone to yield uncertainty. In order to overcome the arisen uncertainties, two basic approaches of emergency ordering and product substitutability are taken into consideration. In the proposed emergency ordering scheme, two sets of suppliers, i.e. cheap unreliable and expensive reliable (emergency) suppliers, are considered and a tradeo between the cheap price of the main suppliers and reliability of emergency supplier is attained. In product substitution scheme, the demand of each product is ful lled directly by the related product or other substitute products. A riskaverse decision maker is taken into consideration whose risk-averseness level is controlled by the portion of demand which should be de nitely satis ed and not backordered or lost. A robust optimization approach with two variability measures is proposed to minimize the variability of the model. The results reveal the value of emergency ordering and product substitution. In addition, the results suggest which measure should be selected according to the decision maker's attitude toward the desired pro t, variability, and service level.

Product substitution with customer segmentation under panic buying behavior

“…The quantity available is the whole of the inventory left from time-period i-1 and the amount ordered during time-period i is expressed in Eq. (8). Equation (9) denotes the number of available units as the aggregate of the underlying stock and the amount ordered during first time-period.…”

“…Mardan et al [8] stated that product substitution is one of the efficient tools to minimize supply uncertainties. According to Transchel [9], substitution behavior decreases the supply-demand imbalance and provides significant profit implications for firms.…”

Dual‐Source Procurement Strategies of Emergency Materials Considering Risk Attitudes

“…Terefore, while ensuring sufcient emergency materials reserve, how to determine the optimal amount of emergency materials reserve, reduce emergency materials waste, and avoid the problem of overdue emergency materials occupying inventory has become a new challenge for government organizations to purchase and store emergency materials. As a result, based on the option contract, many scholars have established an emergency procurement model considering the reserve period, so as to optimize the emergency materials reserve mechanism [11][12][13][14].…”