Prepositioned inventory

The uncertainties associated with natural disasters create complexities in the supply chain, and they need to possess the capabilities of disaster prevention and fortiflcation, preparedness, relief, and recovery. Both proactive and real-time response decisions should be enabled in the supply chain. Redundancies such as prepositioned inventories, fortifled homes and businesses need to be balanced with the cost of logistics and procuring supplies at short notice. As the disaster may strike at only one of potential sites, the supply chain must be structured for transshipment of supplies from other sites where disaster did not strike. As human lives are at stake, the supply chain also needs to be endowed with a rapid infrastructure-repair capability (humanitarian supply chains are discussed in Chap. 8). 

Clearly, the prepositioned inventory can be bought in bulk, qualifying for price discounts. But they carry the risk of under-usage, deterioration, and pilferage, if disasters do not materialize. The supplies are stored in warehouses in strategic locations. 

As explained earlier, the relief supplies are procured for two buckets prepositioned inventory, and real time deliveries. Procurement can therefore be structured in the way discussed with respect to the Griffin Manufacturing case, discussed in Chap. 6. The supplies for prepositioned inventory can be procured in a proactive mode - a long-term contract with low-cost suppliers and ample delivery lead time. Such contracts are usually of the fixed-price type, where price is determined through a bidding process (reverse auction). The supplier bids a fixed price but must satisfy buyer stipulated specifications on the RFQ. The supplier bears all risk associated with cost escalation, but he/she prices his product appropriately to cover his production risk. Clearly, a fixed-price contract is easy to implement and inexpensive to monitor. 

The unique aspects of a humanitarian relief chain are carefully laid out in Chap. 8. While saving life creates social value, it generates profits for the participating retailers and logistics providers. However, the laws of supply and demand do not work well in a chaotic environment, as the consumer (aid recipient) neither places purchase orders nor pays for the delivered services. Conversely, the aid-donors who finance transactions have little control on what is delivered to the recipients. Coordination of prepositioned inventory with real time deliveries and the global flow of relief funds are discussed. 

Prepositioned supplies (in a general delivery warehouse) are used only when a disaster strikes. Therefore, the length of storage needed at such warehouses is uncertain. Balcik and Beamon (2008) discuss a facility location problem for humanitarian relief that integrates facility location with inventory decisions, and considers multiple items with different criticalities and response time requirements. 

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