Mitigating product shortage due to disruptions in multi‐stage supply chains

Production and Operations Management, doi:10.1111/poms.13286

Posted: 21 Nov 2017 Last revised: 27 Oct 2020

See all articles by Florian Lücker

Florian Lücker

City University London

Sunil Chopra

Northwestern University - Kellogg School of Management

Ralf Seifert

Ecole Polytechnique Fédérale de Lausanne; IMD Business School

Date Written: October 10, 2020

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.

Keywords: disruption risk management, inventory, reserve capacity, serial supply chain

Suggested Citation

Lücker, Florian and Chopra, Sunil and Seifert, Ralf, Mitigating product shortage due to disruptions in multi‐stage supply chains (October 10, 2020). Production and Operations Management, doi:10.1111/poms.13286, Available at SSRN: https://ssrn.com/abstract=3072382 or http://dx.doi.org/10.2139/ssrn.3072382

Florian Lücker (Contact Author)

City University London ( email )

Northampton Square
London, EC1V 0HB
United Kingdom

Sunil Chopra

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Ralf Seifert

Ecole Polytechnique Fédérale de Lausanne ( email )

Odyssea
Station 5
Lausanne, 1015
Switzerland

HOME PAGE: http://https://www.epfl.ch/labs/tom/team/

IMD Business School ( email )

Ch. de Bellerive 23
P.O. Box 915
CH-1001 Lausanne
Switzerland

HOME PAGE: http://https://www.imd.org/faculty/professors/ralf-seifert/

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