A stochastic inventory management model for a dual sourcing supply chain with disruptions

As companies continue to globalise their operations and outsource significant portion of their value chain activities, they often end up relying heavily on order replenishments from distant suppliers. The explosion in long-distance sourcing is exposing supply chains and shareholder value at ever increasing operational and disruption risks. It is well established, both in academia and in real-world business environments, that resource flexibility is an effective method for hedging against supply chain disruption risks. In this contextual framework, we propose a single period stochastic inventory decision-making model that could be employed for capturing the trade-off between inventory policies and disruption risks for an unreliable dual sourcing supply network for both the capacitated and uncapacitated cases. Through the developed model, we obtain some important managerial insights and evaluate the merit of contingency strategies in managing uncertain supply chains.