Managing disruption risk over the product life cycle

In this article, we focus on managing disruption risk over the life cycle of a product. We consider two disruption mitigation strategies: holding risk mitigation inventory (RMI) and ordering from a reliable supplier. Our goal is to determine how the two strategies can best be used over the life cycle of a product where future demand is influenced by current sales that may be affected by supply disruptions. Our insights based on numerical analysis indicate that the optimal actions are impacted by the fact that future demand is affected by current sales over the life cycle. This results in optimal behavior that may be quite different from what has been proposed in the literature where demand over time has largely been assumed to be independent of current sales. For example, we show that the order quantity from an unreliable supplier may increase in the probability of disruption.