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Reactive Strategies for Supply Disruption Management: Backordering vs. Upgrading

This research examines two reactive strategies for supply disruption. We consider an assemble-to-order system with two substitute products where the demand is price-sensitive and time-sensitive. We propose and compare the performance of two strategies for managing supply disruption, namely, the backordering strategy and the upgrading strategy. We find that the upgrading strategy is superior to the backordering strategy at the beginning of the disruption in the system with high time-sensitive demand and high upgrading value. And the backordering strategy is usually superior to the upgrading strategy at the end of the disruption in the system with low upgrading value.