Determining the optimal size of supply base with the consideration of risks of supply disruptions

Abstract

Determining the optimal size of the supply base has haunted managers for years. A small supply base gives rise to the risk of supply disruption, whereas a large supply base increases the fixed cost. In this paper, we consider the risks of supply disruption due to occurrence of super, semi-super, and unique events in order to formulate a model to determine the optimal size of supply base. We depict the model in a decision tree-like structure and forward a tabular method of solution that obviates the need avoids evaluation of a majority of non-optimal solutions and thus overcomes the problem of dimensionality. © 2009 Elsevier B.V. All rights reserved.