Fundamentals of Supply Chain Theory, 2nd Edition

Chapter 9 Supply Uncertainty

9.1 Introduction to Supply Uncertainty

Supply chains are subject to many types of uncertainty, and many approaches have been proposed for modeling uncertainty in the supply chain. So far in this book, we have primarily considered uncertainty in demand. In this chapter, we study models that consider uncertainty in supply; in other words, what happens when a firm's suppliers, or the firm's own facilities, are unreliable.

Supply uncertainty may take a number of forms. These include:

• Disruptions. A disruption interrupts the supply of goods at some stage in the supply chain. Disruptions tend to be binary events—either there's a disruption or there isn't. During a disruption, there's generally no supply available. Disruptions may be due to bad weather, natural disasters, strikes, suppliers going out of business, etc.
• Yield Uncertainty. Sometimes the quantity that a supplier can provide falls short of the amount ordered; the amount actually supplied is random. This is called yield uncertainty. It can be the result of product defects, or of batch processes in which only a certain percentage of a given batch (the yield) is usable.
• Capacity Uncertainty. Uncertainty in the quantity that a supplier can provide. Whereas yield uncertainty is typically dependent on the order quantity (e.g., we order S units, but only a portion of them are usable), capacity uncertainty usually assumes the capacity is independent of the order quantity, and the supplier ...