Increasing Supply Chain Robustness through Process Flexibility and Inventory

David Simchi‐Levi, He Wang and Yehua Wei

Production and Operations Management, 2018, vol. 27, issue 8, 1476-1491

Abstract: We study a hybrid strategy that uses both process flexibility and finished goods inventory for supply chain risk mitigation. The interplay between process flexibility and inventory is modeled as a two‐stage robust optimization problem. In the first stage, the firm allocates inventory before disruption happens; in the second stage, after a disruption happens, the firm determines production quantities at each plant to minimize demand loss. Our robust optimization model can be solved efficiently using constraint generation, and under some stylized assumptions, can be solved in closed form. For a canonical family of flexibility designs known as the K‐chains, we provide an analytical expression for the optimal inventory solution, which allows us to study the effectiveness of different degrees of flexibilities. Moreover, we find that firms should allocate more inventory to high variability products when its level of flexibility is low, but as flexibility increases, the inventory allocation pattern “flips” and firms should allocate more inventory to low variability products. These observations are further verified through a numerical case study of an automobile supply chain. Finally, we extend our robust optimization model to the time‐to‐survive metric, a metric that computes the longest time a supply chain can guarantee a predetermined service level under disruption.

Date: 2018
References: Add references at CitEc
Citations: View citations in EconPapers (41)

Downloads: (external link)
https://doi.org/10.1111/poms.12887

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:popmgt:v:27:y:2018:i:8:p:1476-1491

Ordering information: This journal article can be ordered from
http://onlinelibrary ... 1111/(ISSN)1937-5956

Access Statistics for this article

Production and Operations Management is currently edited by Kalyan Singhal

More articles in Production and Operations Management from Production and Operations Management Society
Bibliographic data for series maintained by Wiley Content Delivery ().