The Effect of Supply Disruptions on Supply Chain Design Decisions

We study an integrated supply chain design problem that determines the locations of retailers and the assignments of customers to retailers in order to minimize the expected costs of location, transportation, and inventory. The system is subject to random supply disruptions that may occur at either the supplier or the retailers. Analytical and numerical studies reveal the effects of these disruptions on retailer locations and customer allocations. In addition, we demonstrate numerically that the cost savings from considering supply disruptions at the supply chain design phase (rather than at the tactical or operational phase) are usually significant.