Disruptions in One-Warehouse Multiple-Retailer Systems

Abstract

We study two-echelon distribution systems (also known as one-warehouse, multiple-retailer (OWMR) systems) subject to supply disruptions. We propose algorithms to find the optimal or near-optimal stocking levels of all the locations in the system by assuming periodic review base-stock policies, deterministic demands at the retailers and non-overlapping disruptions at the supply processes of the warehouse and the retailer. This is the first paper to consider OWMR systems with all locations keeping inventory and all locations subject to supply disruptions. We show how supply disruptions at different parts of the network affect inventory decisions and we quantify the effects of ignoring the disruptions at different parts of the supply chain. Our results suggest that companies should work on reducing the duration of supply disruptions instead of trying to prevent them. In addition, if they choose to do nothing to prevent the consequences of some of the disruptions, these should not be the ones happening close to the customers.