Inventory Management Under Random Supply Disruptions and Partial Backorders

We explore the management of inventory for stochastic-demand systems, where the product’s supply is randomly disrupted for periods of random duration, and demands that arrive when the inventory system is temporarily out of stock become a mix of backorders and lost sales. The stock is managed according to the following modified (s , S) policy: If the inventory level is at or below s and the supply is available, place an order to bring the inventory level up to S . Our analysis yields the optimal values of the policy parameters, and provides insight into the optimal inventory strategy when there are changes in the severity of supply disruptions or in the behavior of unfilled demands. q 1998 John Wiley & Sons, Inc. Naval Research Logistics 45: 687–703, 1998