A multi-echelon production–inventory system with supply disruption

• The model is developed for single item product with supply disruption.
• During regular production run-time, the production system may be also disrupted.
• Safety stock and maintenance are considered.
• Production system takes a random time to restore the system to the working condition.
• Manufacturer and retailer inventory level may both fall into shortage.

The article investigates an integrated multi-layer supply chain model consisting of supplier, manufacturer and retailer while supply disruption, machine breakdown, safety stock, maintenance breakdown occur simultaneously. At beginning of the production, manufacturer keeps some raw materials in stock received from second supplier at high price, as safety stock due to supply disruption of first supplier. Corrective maintenance is done immediately to restore its normal stage when machine breakdown occurs. Stock out situations at manufacturer and retailer are considered due to disruption of production for machine breakdown. The integrated expected costs of the chain in centralized (collaborating) and decentralized (Stakelberg approach) system are compared. A numerical example and its sensitivity analysis are provided to test feasibility of the model.