Protection of warehouses and plants under capacity constraint

While warehouses may be subjected to less protection effort than plants, their unavailability may have substantial impact on the supply chain performance. This paper presents a method for protection of plants and warehouses against intentional attacks in the context of the capacitated plant and warehouses location and capacity acquisition problem. A non-cooperative two-period game is developed to find the equilibrium solution and the optimal defender strategy under capacity constraints. The defender invests in the first period to minimize the expected damage and the attacker moves in the second period to maximize the expected damage. Extra-capacity of neighboring functional plants and warehouses is used after attacks, to satisfy all customers demand and to avoid the backorders. The contest success function is used to evaluate success probability of an attack of plants and warehouses. A numerical example is presented to illustrate an application of the model. The defender strategy obtained by our model is compared to the case where warehouses are subjected to less protection effort than the plants. This comparison allows us to measure how much our method is better, and illustrates the effect of direct investments in protection and indirect protection by warehouse extra-capacities to reduce the expected damage.