Inventory prepositioning of relief material under the Joint Government-Enterprise Storage mode

Abstract

To ensure the timely supply of relief materials at a low cost, many countries have adopted the Joint Government and Enterprises Storage (JGES) mode to prepositioning relief materials, where some enterprises replace the government in stockpiling emergency supplies for disasters. A critical problem faced by the enterprise is how to manage its inventory considering its daily business demand and the possible emergency demand. The government also wants to know the performance of the mode and how to subsidize the enterprise. To address these questions, we first consider the single-period problem and formulate it as a newsvendor-type model. We obtain the optimal conditions and analyze the impacts of some parameters on the optimal policy. Furthermore, we consider the multi-period case and the government’s optimal subsidy for the enterprise. For the former, we show that the optimal inventory policy is still the base-stock policy if the fixed ordering cost is zero, and is the $(s,S)$ policy if the cost is positive. The government’s subsidy to the firm increases first and then decreases as the occurrence probability of the emergency increases. Finally, we conduct numerical experiments to compare the performance of the mode with that of the Separate Government-Enterprise Storage (SGES) mode, to demonstrate its advantages and the impacts of some parameters on its performance.