Effectiveness of policies for mitigating supply disruptions

Abstract

Purpose The purpose of this paper is to examine supply‐side disruptions in a supply chain, and to analyse the effectiveness of two inventory‐based policies for mitigating the impact of supply disruptions: maintaining strategic inventory reserves (the R ‐policy), and using larger orders (the Q ‐policy). Design/methodology/approach The paper assess the effectiveness of two inventory‐based mitigating policies implemented at a reseller when end customer demand is stable but supply can be disrupted. An analytical model is provided, and numerical experiments are conducted to evaluate the effectiveness of the policies for mitigating the impact of disruption under different disruption scenarios. Findings Results indicate that the R ‐policy performs consistently better than the Q ‐policy in terms of product availability measures, as tested under a wide range of frequency and duration of supply disruptions. Practical implications Supply chain trends of lean operations and global sourcing have exposed business organizations to a greater risk and have further raised the need to protect businesses against random supply disruptions. Originality/value The paper intends to contribute to the narrowing of the gap in the research of supply‐side disruptions. Further, the topic of inventory reserves has been discussed to date in only a very general sense; the paper proposes conditions for practical implementation and provides unique insights into the effectiveness of the use of strategic inventory reserves as a supply disruption mitigation policy.