Dynamic Strategies To Mitigate Supply Disruptions In Production-inventory Systems

With the trends of globalization,out-sourcing,clean-production,and others,supply chain becomes more complicated,time-depended and vulnerable.A tiny supply disruption could lead to devastated loss.Thus,disruption management has become an attractive research problem.Taking into consideration different market environments,different precautions in production-inventory systems,and different interruptions,we identify the dynamic process of market demand and inventory,and the negative impact caused by disruptions.With the goal of minimizing interruption loss,dynamic reactive and mixed mitigation strategies are investigated via game theory,dynamic optimization and other methodologies.The main contents of this study include the following three directions.First,we conduct an in-depth analysis of contingent sourcing strategy for handling supply disruptions considering demand learning.The production is entirely interrupted due to a supply disruption.Customers react dynamically to the inventory shortage thereafter,varying in the light of market condition,customer characteristic,and behavioral interaction.The manufacturer performs the countermeasure of contingent sourcing to cope with the disruption as well as demand recovery,while both the postdisruption demand and inventory exhibit complicated dynamics in terms of customer behavior,demand recovery,and the implementation of contingent sources.This raises two important and fundamental questions in designing an optimal contingent sourcing strategy.First,in view of customer behavior and demand recovery,what is the optimal time to reroute? Second,under what conditions does the contingent sourcing strategy fail to hedge against disruptions? To answer these two questions,we first predict the post-disruption customer behavior.Customers are classified into two types in view of an essential characteristic of customer,i.e.,brand loyalty,and the interaction is captured as ‘demand learning' among each type of customers.By using differential models,we analytically describe the post-disruption dynamic behavior of customer in five scenarios,depending on customers' constitution,transient reaction,brand loyalty,and competition intensity.Next,we develop a model to achieve the optimal sourcing time for minimizing disruption impact,and accordingly propose dynamic contingent sourcing strategies.Then,on the basis of contingent sourcing,we develop dynamic combined strategies for production-inventory systems with and without idle time.In view of different hitting times and durations of disruptions,this paper compares and selects proactive and reactive strategies for supply disruption management via a cost minimization model.Based on the comparison,two types of dynamic strategies are proposed to guide the mitigation approaches as the disruptions continue.One is a dynamic reactive strategy for the system without idle time,and is called passive-backup.The other is a dynamic combination strategy that contains reactive and proactive strategies for the system with idle time and is called recovery-backup.How the lead time of backup sources,disruption starting time,cost of lost sales,backup costs and backorder rate impact the dynamic strategies is also explored in this paper.Last,in conjunction with contingent sourcing and compensation,we investigate dynamic mixed mitigation strategies for supply disruption management in a production system with safety inventory.When a supply disruption occurs,the manufacturer can choose to satisfy some demand by maintaining production through safety stocks or a secondary contingent source,and turn some unmet demand into backorders on the basis of compensation.An optimal control model is formulated with the objective of minimizing cost of disruption impact,considering the dynamics of inventory and demand to the joint implementation of these strategies.Applying Pontryagin's Maximum Principle,a number of optimal dynamic mitigation strategies are established with closed forms,providing analytical guidance on how to dynamically and jointly adapt the quantity of contingent sourcing,the price of compensation,and the speed of safety inventory consumption.We also demonstrate that pure strategies are only sufficient for tackling supply shortage under some special circumstances.Otherwise,a dynamic combined strategy is optimal.The results contribute to supply disruption management in theories,and provide specific decision-making suggestions for enterprises to effectively deal with interrupts.