Inventory decisions for emergency supplies based on hurricane count predictions

This paper addresses a stochastic inventory control problem for manufacturing and retail firms who face challenging procurement and production decisions associated with hurricane seasons. Specifically, the paper presents a control policy in which stocking decisions are based on a hurricane forecast model that predicts the number of landfall hurricanes for an ensuing hurricane season. The multi-period inventory control problem is formulated as a stochastic programming model with recourse where demand during each pre-hurricane season period is represented as a convolution of the current period's demand and an updated estimate of demand for the ensuing hurricane season. Due to the computational challenges associated with solving stochastic programming problems, recent scenario reduction techniques are discussed and illustrated through an example problem. The proposed model specifies cost minimizing inventory strategies for simultaneously meeting stochastic demands that occur prior to the hurricane season while proactively preparing for potential demand surge during the season. (C) 2009 Elsevier B.V. All rights reserved.