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Roles of inventory and reserve capacity in mitigating supply chain disruption risk

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  • Florian Lücker
  • Ralf W. Seifert
  • Işık Biçer

Abstract

This research focuses on managing disruption risk in supply chains using inventory and reserve capacity under stochastic demand. While inventory can be considered as a speculative risk mitigation lever, reserve capacity can be used in a reactive fashion when a disruption occurs. We determine optimal inventory levels and reserve capacity production rates for a firm that is exposed to supply chain disruption risk. We fully characterise four main risk mitigation strategies: inventory strategy, reserve capacity strategy, mixed strategy and passive acceptance. We illustrate how the optimal risk mitigation strategy depends on product characteristics (functional versus innovative) and supply chain characteristics (agile versus efficient). This work is inspired from a risk management problem of a leading pharmaceutical company.

Suggested Citation

  • Florian Lücker & Ralf W. Seifert & Işık Biçer, 2019. "Roles of inventory and reserve capacity in mitigating supply chain disruption risk," International Journal of Production Research, Taylor & Francis Journals, vol. 57(4), pages 1238-1249, February.
    • Handle: RePEc:taf:tprsxx:v:57:y:2019:i:4:p:1238-1249
    DOI: 10.1080/00207543.2018.1504173
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    Cited by:

    1. Yao, Chen & Fan, Bo & Zhao, Yupan & Cheng, Xinyue, 2023. "Evolutionary dynamics of supervision-compliance game on optimal pre-positioning strategies in relief supply chain management," Socio-Economic Planning Sciences, Elsevier, vol. 87(PB).
    2. Qing Zhang & Weiguo Fan & Jianchang Lu & Siqian Wu & Xuechao Wang, 2021. "Research on Dynamic Analysis and Mitigation Strategies of Supply Chains under Different Disruption Risks," Sustainability, MDPI, vol. 13(5), pages 1-29, February.
    3. Md. Tariqul Islam & Abdullahil Azeem & Masum Jabir & Ananna Paul & Sanjoy Kumar Paul, 2022. "An inventory model for a three-stage supply chain with random capacities considering disruptions and supplier reliability," Annals of Operations Research, Springer, vol. 315(2), pages 1703-1728, August.
    4. Paul, Sanjoy Kumar & Chowdhury, Priyabrata & Moktadir, Md. Abdul & Lau, Kwok Hung, 2021. "Supply chain recovery challenges in the wake of COVID-19 pandemic," Journal of Business Research, Elsevier, vol. 136(C), pages 316-329.
    5. Dmitry Ivanov, 2022. "Viable supply chain model: integrating agility, resilience and sustainability perspectives—lessons from and thinking beyond the COVID-19 pandemic," Annals of Operations Research, Springer, vol. 319(1), pages 1411-1431, December.
    6. Hannan Amoozad Mahdiraji & Aliasghar Abbasi Kamardi & Moein Beheshti & Seyed Hossein Razavi Hajiagha & Luis Rocha-Lona, 2022. "Analysing supply chain coordination mechanisms dealing with repurposing challenges during Covid-19 pandemic in an emerging economy: a multi-layer decision making approach," Operations Management Research, Springer, vol. 15(3), pages 1341-1360, December.
    7. Gupta, Varun & Ivanov, Dmitry & Choi, Tsan-Ming, 2021. "Competitive pricing of substitute products under supply disruption," Omega, Elsevier, vol. 101(C).
    8. Zhang, Weijian & Shi, Xianliang & Huang, Anqiang & Hua, Guowei & Teunter, Ruud H., 2023. "Optimal stock and capital reserve policies for emergency medical supplies against epidemic outbreaks," European Journal of Operational Research, Elsevier, vol. 304(1), pages 183-191.
    9. Ivanov, Dmitry & Dolgui, Alexandre, 2021. "OR-methods for coping with the ripple effect in supply chains during COVID-19 pandemic: Managerial insights and research implications," International Journal of Production Economics, Elsevier, vol. 232(C).
    10. Ming Liu & Hao Tang & Yunfeng Wang & Ruixi Li & Yi Liu & Xin Liu & Yaqian Wang & Yiyang Wu & Yu Wu & Zhijun Sun, 2023. "Enhancing Food Supply Chain in Green Logistics with Multi-Level Processing Strategy under Disruptions," Sustainability, MDPI, vol. 15(2), pages 1-21, January.
    11. Antonio Zavala-Alcívar & María-José Verdecho & Juan-José Alfaro-Saiz, 2020. "A Conceptual Framework to Manage Resilience and Increase Sustainability in the Supply Chain," Sustainability, MDPI, vol. 12(16), pages 1-38, August.
    12. Abhijit Barman & Rubi Das & Pijus Kanti De, 2022. "Logistics and supply chain management of food industry during COVID-19: disruptions and a recovery plan," Environment Systems and Decisions, Springer, vol. 42(3), pages 338-349, September.
    13. Belhadi, Amine & Kamble, Sachin & Jabbour, Charbel Jose Chiappetta & Gunasekaran, Angappa & Ndubisi, Nelson Oly & Venkatesh, Mani, 2021. "Manufacturing and service supply chain resilience to the COVID-19 outbreak: Lessons learned from the automobile and airline industries," Technological Forecasting and Social Change, Elsevier, vol. 163(C).
    14. Cheramin, Meysam & Saha, Apurba Kumar & Cheng, Jianqiang & Paul, Sanjoy Kumar & Jin, Hongyue, 2021. "Resilient NdFeB magnet recycling under the impacts of COVID-19 pandemic: Stochastic programming and Benders decomposition," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 155(C).
    15. Ivanov, Dmitry, 2020. "Predicting the impacts of epidemic outbreaks on global supply chains: A simulation-based analysis on the coronavirus outbreak (COVID-19/SARS-CoV-2) case," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 136(C).
    16. Na Wang & Jingze Chen & Hongfeng Wang, 2023. "Resilient Supply Chain Optimization Considering Alternative Supplier Selection and Temporary Distribution Center Location," Mathematics, MDPI, vol. 11(18), pages 1-22, September.
    17. Sylvia Mardiana, 2023. "Gasoline Policy Simulation to Increase Responsiveness Using System Dynamics: A Case Study of Indonesia’s Gasoline Downstream Supply Chain," International Journal of Energy Economics and Policy, Econjournals, vol. 13(6), pages 109-118, November.
    18. Sawik, Tadeusz, 2022. "Stochastic optimization of supply chain resilience under ripple effect: A COVID-19 pandemic related study," Omega, Elsevier, vol. 109(C).
    19. Manik Debnath & Sanat Kr. Mazumder & Md Billal Hossain & Arindam Garai & Csaba Balint Illes, 2023. "Optimal Base-Stock Inventory-Management Policies of Cement Retailers under Supply-Side Disruptions," Mathematics, MDPI, vol. 11(18), pages 1-34, September.
    20. Mishra, Rajat & Rasheed, Abdul A. & Yasar, Mahmut & Napier, Randy & Nakkas, Alper, 2021. "Inventory positions in US manufacturing: A competitive dynamics approach," International Journal of Production Economics, Elsevier, vol. 238(C).
    21. Sanjoy Kumar Paul & Priyabrata Chowdhury, 2020. "Strategies for Managing the Impacts of Disruptions During COVID-19: an Example of Toilet Paper," Global Journal of Flexible Systems Management, Springer;Global Institute of Flexible Systems Management, vol. 21(3), pages 283-293, September.
    22. Aldrighetti, Riccardo & Battini, Daria & Ivanov, Dmitry & Zennaro, Ilenia, 2021. "Costs of resilience and disruptions in supply chain network design models: A review and future research directions," International Journal of Production Economics, Elsevier, vol. 235(C).
    23. Manu Sharma & Deepak Kaushal & Sudhanshu Joshi, 2023. "Strategic measures for enhancing resiliency in knowledge base supply chains: an emerging economy perspective," Operations Management Research, Springer, vol. 16(3), pages 1185-1205, September.

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