Centralization versus decentralization: Risk pooling, risk diversification, and supply chain disruptions

• Published in: Omega (Oxford) Vol. 52; pp. 201 - 212
• Main Authors: Schmitt, Amanda J., Sun, Siyuan Anthony, Snyder, Lawrence V., Shen, Zuo-Jun Max
• Format: Journal Article
• Language: English
• Published: Oxford Elsevier Ltd 01.04.2015; Pergamon Press Inc
• Subjects: Centralization; Decentralization; Design optimization; Inventory control; Risk; Risk management; Studies; Supply chain disruptions; Supply chain management; Systems design; Supply chain disruptions; Inventory control; Risk

We investigate optimal system design in a multi-location system in which supply is subject to disruptions. We examine the expected costs and cost variances of the system in both a centralized and a decentralized inventory system. We show that, when demand is deterministic and supply may be disrupted...