Value of disruption information in an EOQ environment

We consider an infinite horizon, continuous review inventory model with deterministic stationary demand where supply is subject to disruption. The supply process alternates between two states randomly: one in which it functions normally (ON-period) and one in which it is disrupted (OFF-period). In this setting, we seek the value of disruption information which enables the buyer to place "disruption orders" at the beginning of OFF-periods. Utilizing renewal theory, we derive the total expected cost and characterize the optimal regular order-up-to level together with the order-up-to level for disruption orders. We also conduct an extensive numerical analysis and compare the results with the model with no opportunity of disruption orders. We observe that if the shortage cost is relatively high, and the disruption risk is significant (in terms of duration and/or frequency), placing a disruption order reduces the expected total cost significantly. (C) 2017 Elsevier B.V. All rights reserved.