The Decisions on Backup Supply in the Presence of Supply Disruptions

The Decisions on Backup Supply in the Presence of Supply Disruptions

Jing Hou (Southeast University, China), Amy Z. Zeng (Worcester Polytechnic Institute, USA) and Lindu Zhao (Southeast University, China)
DOI: 10.4018/jisscm.2012040102
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Abstract

As supply chains are becoming more dependent upon suppliers, the importance of using backup supply is receiving increasing attention. The objective of this paper is to develop a set of models to facilitate manufacturers/buyers’ decision as to when to use a backup supply if the main supply source is interrupted. The authors take a number of cost factors such as production, purchasing and inventory holding during the disruption cycle into consideration. The impacts of the duration and the magnitude of the main supplier’s breakdown are explicitly studied, and the effect of demand change during disruption is also examined. Numerical illustrations are given to show the applications of the decision-making models developed in the paper.
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Literature Review

Supply risk management has been studied from various angles in the literature (Vanany et al., 2009); for example, ordering policies (e.g., Kim et al., 2005; Ross et al., 2008; Li & Chen, 2010), pricing policies (e.g., Tang & Yin, 2007), capacity allocation (e.g., Hsieh & Wu, 2008), and financial investment (e.g., Babich, 2008). Considering the relevance, we herein review two streams of recent research efforts: one is focused on inventory management in the presence of supply disruption or uncertainty, and the other is related to supply disruption and multiple sourcing.

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