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Disruption risk management in service-level agreements

Author

Listed:
  • Hamed Jahani
  • Babak Abbasi
  • Zahra Hosseinifard
  • Masih Fadaki
  • James P. Minas

Abstract

This paper studies the impact of capacity/inventory disruption on a supplier's cost, where the supplier has heterogeneous service level agreements (SLAs) in place with multiple customers (retailers). We compare three capacity allocation policies in the presence of supply disruption, with both full and partial disruption cases investigated. The results show that the two-stage policy outperforms other capacity allocation policies when a disruption is anticipated and that partial disruption is more manageable than full disruption in terms of meeting the SLAs. Furthermore, the supplier is better off to negotiate a longer performance review period assuming the penalty per time unit is fixed. This result is contrary to findings in the literature for SLAs when there is no consideration of disruption. The insights from this study can assist suppliers in determining their capacity level, making capacity-related decisions such as locations of warehouses or production sites, in allocating capacity to customers and in negotiating SLA terms such as the performance review period length and penalty rates.

Suggested Citation

  • Hamed Jahani & Babak Abbasi & Zahra Hosseinifard & Masih Fadaki & James P. Minas, 2021. "Disruption risk management in service-level agreements," International Journal of Production Research, Taylor & Francis Journals, vol. 59(1), pages 226-244, January.
    • Handle: RePEc:taf:tprsxx:v:59:y:2021:i:1:p:226-244
    DOI: 10.1080/00207543.2020.1748248
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    Cited by:

    1. Matthias Klumpp & Dominic Loske, 2021. "Sustainability and Resilience Revisited: Impact of Information Technology Disruptions on Empirical Retail Logistics Efficiency," Sustainability, MDPI, vol. 13(10), pages 1-20, May.
    2. Rudiah Md Hanafiah & Nur Hazwani Karim & Noorul Shaiful Fitri Abdul Rahman & Saharuddin Abdul Hamid & Ahmed Maher Mohammed, 2022. "An Innovative Risk Matrix Model for Warehousing Productivity Performance," Sustainability, MDPI, vol. 14(7), pages 1-21, March.
    3. Mehdi Alizadeh & Mir Saman Pishvaee & Hamed Jahani & Mohammad Mahdi Paydar & Ahmad Makui, 2023. "Viable healthcare supply chain network design for a pandemic," Annals of Operations Research, Springer, vol. 328(1), pages 35-73, September.
    4. Masih Fadaki & Babak Abbasi & Prem Chhetri, 2022. "Quantum game approach for capacity allocation decisions under strategic reasoning," Computational Management Science, Springer, vol. 19(3), pages 491-512, July.

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