185-955-1-PB - doi:10.3926/jiem.2010.v3n3.p421-446 JIEM...

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Unformatted text preview: doi:10.3926/jiem.2010.v3n3.p421-446 JIEM, 2010 – 3(3): 421-446 – Online ISSN: 2013-0953 Print ISSN: 2013-8423 Production control and supplier selection under demand disruptions 421 X. Chen; J. Zhang Production control and supplier selection under demand disruptions Xianzhe Chen, Jun Zhang North Dakota State University (UNITED STATES) [email protected] ; [email protected] Received March 2010 Accepted September 2010 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 doi:10.3926/jiem.2010.v3n3.p421-446 JIEM, 2010 – 3(3): 421-446 – Online ISSN: 2013-0953 Print ISSN: 2013-8423 Production control and supplier selection under demand disruptions 422 X. Chen; J. Zhang 1 Introduction Although demand disruptions happen infrequently, they have significant impacts on the whole supply chain (Tang, 2006). In 2008, many manufacturers experienced the global financial crisis and sudden demand disruptions. Some of the manufacturers who could not adapt to the sudden economic change by adopting alternative supplier selection and production control strategies had to shut down their businesses. For instance, nearly 1000 toy manufacturers closed down in Southern China in 2008 because of the nosedived overseas orders from U.S. and Europe. Hendricks and Singhal (2005) find that the average abnormal stock returns of firms which experienced disruptions are almost –40%, which clearly shows that the supply chain disruptions could significantly affect the normal operation and financial health of a company. Hence, the main purpose of this paper is to investigate the performance of a three-echelon supply chain system under demand disruptions in a continuous-time setting, to discuss production control and optimal supplier selection problems under demand disruptions, and to provide managerial...
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185-955-1-PB - doi:10.3926/jiem.2010.v3n3.p421-446 JIEM...

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