Published time: 11 April 2020
Authors: Myles D.Garvey, Steven Carnovale
Keywords: Supply chain risk structure, Supply chain risk propagation, Newsvendor, Inventory management, Bayesian networks, Ripple effect
How should managers take into account the propagation of supply chain disruptions and risks (i.e. the ripple effect) when they design their inventory policies? For over 60 years, various extensions and applications to the popular newsvendor model have been suggested, where cost/profit are often the focal objective. We propose a new version of the traditional single-period newsvendor model – the ”Rippled Newsvendor” – with supply chain severity (i.e. risk propagation) as the primary objective while taking into account network structure. Our model considers exogenous and endogenous risk(s) of disruption while exploring the tension between under-supply and ”wear-and-tear” (i.e system breakdown).
The rippled newsvendor; A new inventory framework for modeling supply chain risk severity in the presence of risk propagation