Supply chain risks analysis by using jump-diffusion model

Authors:
Xianzhe Chen;Jun Zhang
Affiliations:
North Dakota State University, Fargo, ND;North Dakota State University, Fargo, ND
Venue:
Proceedings of the 40th Conference on Winter Simulation
Year:
2008

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Abstract

This paper investigates the effects of demand risk on the performance of supply chain in continuous time setting. The inventory level has been modeled as a jump-diffusion process and the two-number inventory policy has been implemented in the supply chain system. The simulated annealing algorithm has been used to search the optimal critical values of the two-number policy. The jump magnitude has been considered in two cases: constant and Laplace distribution which has favorable property, i.e. leptokurtic. Numerical studies have been conducted for various scenarios to provide insights of effects of demand disruption on the performance of the supply chain.