An analysis of optimal ordering policies for a two-supplier system with disruption risk

Sha Luo, S. Sebnem Ahiska, Shu-Cherng Fang, Russell E. King, Donald P. Warsing and Shuohao Wu

Omega, 2021, vol. 105, issue C

Abstract: We study a single-product, periodic-review inventory system with the presence of fixed ordering cost. There are two suppliers: One is perfectly reliable while the other offers a cost advantage but is subject to possible supply interruptions. We present a theoretical framework with mathematical proofs for the optimal ordering policy in the finite-horizon setting, which exhibits an (s,S) structure, but with multiple, sometimes overlapping, reorder points and order-up-to levels. Then, we analyze the limiting behavior of our (s,S) policy and show that both the optimal cost and ordering policy parameters converge over time. This steady-state (s,S) policy characterizes the optimal sourcing strategy for the infinite-horizon setting. Through computational studies, we investigate the effects of parameter changes on the optimal policy and demonstrate that our two-supplier (s,S) ordering policy is optimal under a wide range of system parameters beyond the conditions required in the optimality proof.

Keywords: Dual sourcing; Unreliable supply; (s,S) policy (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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DOI: 10.1016/j.omega.2021.102517

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