Value of disruption information in an EOQ environment

İsmail Serdar Bakal, Z. Pelin Bayındır and Deniz Esin Emer

European Journal of Operational Research, 2017, vol. 263, issue 2, 446-460

Abstract: We consider an infinite horizon, continuous review inventory model with deterministic stationary demand where supply is subject to disruption. The supply process alternates between two states randomly: one in which it functions normally (ON-period) and one in which it is disrupted (OFF-period). In this setting, we seek the value of disruption information which enables the buyer to place “disruption orders” at the beginning of OFF-periods. Utilizing renewal theory, we derive the total expected cost and characterize the optimal regular order-up-to level together with the order-up-to level for disruption orders. We also conduct an extensive numerical analysis and compare the results with the model with no opportunity of disruption orders. We observe that if the shortage cost is relatively high, and the disruption risk is significant (in terms of duration and/or frequency), placing a disruption order reduces the expected total cost significantly.

Keywords: Inventory; Economic order quantity; Supply disruption; Renewal process (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:263:y:2017:i:2:p:446-460

DOI: 10.1016/j.ejor.2017.04.045

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