Production control and supplier selection under demand disruptions
Abstract: This paper
investigates the effects of demand disruptions on production control and
supplier selection in a three-echelon supply chain system. The customer demand
is modeled as a jump-diffusion process in a continuous-time setting. A
two-number production-inventory policy is implemented in the production control
model for the manufacturer. The objective is to minimize the long-term average
total cost consisting of backlog cost, holding cost, switching cost, and
ordering cost. The simulated annealing method is applied to search the optimal
critical switching values. Furthermore, an improved analytical hierarchy
process (AHP) is proposed to select the best supplier, based on quantitative
factors such as the optimal long-term total cost obtained through the simulated
annealing method under demand disruptions and qualitative factors such as
quality and service. Numerical studies are conducted to demonstrate the effects
of demand disruptions in the face of various risk scenarios. Managerial
insights from simulation results are provided as well. Our approaches can be
implemented as the “stress test” for companies in front of various supply chain
disruption scenarios.
Keywords: supplier selection,
demand disruption, simulated annealing, jump diffusion process, analytical
hierarchy process
Author: Xianzhe Chen, Jun
Zhang
Journal Code: jptindustrigg100028
