Effects of supply disruption frequency and severity on order and costs in an interdependent supply–demand newsvendor

In the context of global supply disruption events, such as the COVID-19 pandemic, it is imperative to investigate the intricate relationship between random supply and uncertain demand and its impact on operational decisions and system performances. In this paper, we focus on a Newsvendor model, where random supply and uncertain demand are intricately interconnected through an underlying state variable. Specifically, we evaluate the influence of disruption frequency and disruption severity in the context of the dependent supply–demand structure. Our investigation highlight the disparate effects of these factors under positive and negative dependence scenarios. Moreover, the optimal cost exhibits a non-monotonic behavior with respect to disruption frequency or severity. One managerial implication that arises from our study is that optimal cost is minimized when the gap of supply–demand dependent structures under different states vanishes.