Inventory strategies to manage supply disruptions

Disruptions in supply chains occur routinely—both large ones, due to natural disasters, labor strikes, or terrorist attacks, and small ones, due to machine breakdowns, supplier stockouts, or quality problems (to name a few examples). Companies whose supply processes are affected by disruptions may experience delays in transportation and dysfunction in some of their facilities, which may result in inventory shortages. Although firms can take measures to prevent them, some disruptions are inevitable. Hence, in order to avoid the drastic impact of these disruptions, firms need to protect against them. There are multiple tactics that companies can choose from for managing the risk of disruptions. One of the most common tactics is to use inventory to buffer against the additional uncertainty. The main concern in inventory management problems is to find the optimal replenishment policy that tells when, from whom and how much to order.