Value of disruption information in an EOQ environment

Abstract

pagesSupply disruptions have important effects on supply chains causing serious financial and intangible damages. In this study, we consider an infinite horizon, continuous review inventory model with deterministic stationary demand where supply is subject to disruption. The supply process alternates between two states randomly: one in which it functions normally ("ON" period) and one in which it is disrupted ("OFF" period). Unsatisfied demand is backordered in off periods. In this setting we seek the value of disruption orders which can be placed at the beginning of OFF-periods with the same fixed cost. Utilizing renewal theory, we derive the total expected cost function and determine the cost minimizing regular order-up-to level and characterize the order-up-to level for disruption orders. We also conduct an extensive numerical analysis and compare the results with the model with no opportunity of disruption orders. We conclude that if the shortage cost is relatively high, placing disruption order always reduces or does not change the expected total cost and if disruption orders are placed then the regular order-up-to levels is generally so close to EQO with backorders.

Resilience toward supply disruptions: A stochastic inventory control model with partial backordering under the base stock policy

“…Recently, Taleizadeh and Dehkordi (2017) extended previous studies and assumed partial backordering condition for the unmet demand. Bakal et al (2017) investigated the value of information about disruption and observed that disruption risk is more significant when the shortage cost is relatively high. Sevgen and Sargut (2019) analyzed a continuous-review inventory system under EOQD conditions and considered that the disruptions might occur randomly for both the supplier and the retailer.…”

“…A disruption usually has two kinds of sources ( Bakal et al, 2017 ; Hishamuddin et al, 2014 ). Interruption of manufacturing machines, transportation problems, supplier inefficiency, and quality problems are internal disruptions ( Sarkar et al, 2019 ).…”

Analysis of an inventory system with emergency ordering option at the time of supply disruption

“…Later, Snyder (2014) presents a simple but effective approximation to find the optimal order quantity for the EOQD model formulated in Berk and Arreola-Risa (1994). Recently, Bakal et al (2017) consider EOQD with an additional order opportunity for the buyer when the supplier gets disrupted. They explore the benefits of an additional order opportunity as well as the value of disruption information.…”

“…We contribute to the literature of inventory models under the threat of disruptions in two dimensions: (1) We expand the analytical model of the continuous review order-up-to level inventory system with random demand and supply to a broader extent by considering zero and exponentially distributed lead times. (2) The supply chain disruption literature has explored the value of disruption information only for deterministic demand setting (Bakal et al 2017). However ,in this study, we conduct an analysis with stochastic demand.…”

Derivation of closed-form expression for optimal base stock level considering partial backorder, deterministic demand, and stochastic supply disruption

“…Snyder (2014) introduced an effective approximation of the EOQ model in which the theoretical and numerical bounds on error in the cost are proposed. Bakal et al (2017) investigated the value of allowing disruption order, which is placed right at the beginning of the disruption period. Allowing the disruption order, the cost significantly reduces.…”