The purpose of this paper is to investigate a supplier-retailer supply chain that experiences disruptions in supplier during the planning horizon. There are multiple options to supply a raw material, to manufacture or assemble the product, and to transport the product to the customer. While determine what suppliers, parts, processes, and transportation modes to select at each stage in the supply chain, options disruption must be considered. In this paper, we show that changes to the original plan induced by a disruption may impose considerable deviation costs throughout the system. When the production plan and the supply chain coordination scheme are designed in a static manner, as is most often the case, both will have to be adjusted under a disruption scenario. Using dynamic policies, we derive conditions under which the supply chain can be coordinated so that the maximum potential profit is realized.
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