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A Continuous‐Review Inventory Model with Disruptions at Both Supplier and Retailer
Author(s) -
Qi Lian,
Shen ZuoJun Max,
Snyder Lawrence V.
Publication year - 2009
Publication title -
production and operations management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.279
H-Index - 110
eISSN - 1937-5956
pISSN - 1059-1478
DOI - 10.1111/j.1937-5956.2009.01026.x
Subject(s) - supply chain , function (biology) , computer science , mathematical optimization , inventory management , order (exchange) , supply chain management , inventory theory , inventory cost , regular polygon , economic order quantity , lost sales , operations research , operations management , business , mathematics , economics , marketing , finance , evolutionary biology , biology , geometry
We consider a continuous‐review inventory problem for a retailer who faces random disruptions both internally and externally (from its supplier). We formulate the expected inventory cost at this retailer and analyze the properties of the cost function. In particular, we show that the cost function is quasi‐convex and therefore can be efficiently optimized to numerically find the optimal order size from the retailer to the supplier. Computational experiments provide additional insight into the problem. In addition, we introduce an effective approximation of the cost function. Our approximation can be solved in closed form, which is useful when the model is embedded into more complicated supply chain design or management models.