Value of disruption information in an EOQ environment

Date

2017-12-01

Author

Bakal, İsmail Serdar
Bayındır, Zeynep Pelin

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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.

Subject Keywords

Inventory, Economic order quantity, Supply disruption, Renewal process

URI

https://hdl.handle.net/11511/33038

Journal

EUROPEAN JOURNAL OF OPERATIONAL RESEARCH

DOI

https://doi.org/10.1016/j.ejor.2017.04.045

Collections

Department of Industrial Engineering, Article

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Citation Formats

İ. S. Bakal and Z. P. Bayındır, “Value of disruption information in an EOQ environment,” EUROPEAN JOURNAL OF OPERATIONAL RESEARCH, pp. 446–460, 2017, Accessed: 00, 2020. [Online]. Available: https://hdl.handle.net/11511/33038.