Cost Vs. Customer Service Level in Supply Chains Under Major Disruptions

This paper presents a bi-objective stochastic optimization problem of supplier selection and customer orders scheduling in the presence of major disruption risks. The supplies are subject to independent random local disruptions of each supplier individually and regional disruptions of all suppliers in the same geographic region simultaneously. Given a set of customer orders for products, the decision maker allocates the demand for parts among certified suppliers and schedules the orders over the planning horizon, to optimize expected cost and expected customer service level. The obtained combinatorial stochastic optimization problem is formulated as a mixed integer program with weighted-sum aggregation of the two conflicting objective functions. Numerical examples and some computational results are presented.