Yield randomness, cost tradeoffs, and diversification in the EOQ model

Yigal Gerchak and Mahmut Parlar

Naval Research Logistics (NRL), 1990, vol. 37, issue 3, 341-354

Abstract: Existing production/inventory models with random (variable) yield take the yield distribution as given. This work takes a step towards selecting the optimal yield randomness, jointly with lot sizing decisions. First, we analyze an EOQ model where yield variance and lot size are to be selected simultaneously. Two different cost structures are considered. Secondly, we consider source diversification (‘second sourcing’) as a means of reducing effective yield randomness, and trade its benefits against its costs. Conditions for the superiority of diversification between two sources with distinct yield distributions over a single source are derived. The optimal number of identical sources is also analyzed. Some comments on the congruence of the results with recent JIT practices are provided.

Date: 1990
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
https://doi.org/10.1002/nav.3800370301

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:navres:v:37:y:1990:i:3:p:341-354

Access Statistics for this article

More articles in Naval Research Logistics (NRL) from John Wiley & Sons
Bibliographic data for series maintained by Wiley Content Delivery ().