Mitigating Product Shortage Due to Disruptions in Multi-Stage Supply Chains

Florian Lücker*, Sunil Chopra, Ralf W. Seifert

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

We focus on the optimal use of risk mitigation inventory (RMI) and reserve capacity to manage disruption risk in serial multi-stage supply chains where product transformation occurs at each stage. We find that under reasonable conditions it is better to hold more RMI downstream than upstream even when the upstream holding costs are lower. We also find that it is often optimal to hold more reserve capacity downstream than upstream. While in one-stage supply chains RMI and reserve capacity always behave as substitutes, it turns out that in multi-stage serial supply chains the interplay between RMI and reserve capacity is more nuanced. We find that echelon RMI and reserve capacity at each stage are substitutes. In contrast, RMI at a stage complements reserve capacity at the adjacent downstream stage.

Original languageEnglish (US)
JournalProduction and Operations Management
DOIs
StateAccepted/In press - 2020

Keywords

  • disruption risk management
  • inventory
  • reserve capacity
  • serial supply chain

ASJC Scopus subject areas

  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering
  • Management of Technology and Innovation

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