A comparison of the constant-order and dual-index policy for dual sourcing

Klosterhalfen, Steffen; Kiesmüller, Gudrun P.; Minner, Stefan

doi:10.1016/j.ijpe.2010.02.004

Cited by 23 publications

(17 citation statements)

References 10 publications

(19 reference statements)

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“…Note that in the literature, optimization of the DIP is always done using simulation (Kiesmüller, 2003;Scheller-Wolf et al, 2003;Veeraraghavan and Scheller-Wolf, 2008;Klosterhalfen et al, 2010;Sheopuri et al, 2010), and so the solutions obtained through the simulation procedure are the best solutions currently known. All computations were coded in MATLAB and executed on a PC with an Intel-M 1.6 GHz processor with 768 MB of RAM.…”

Section: Numerical Resultsmentioning

confidence: 99%

“…It is easily implementable and has been shown to perform very close to the optimal policy (Veeraraghavan and Scheller-Wolf 2008). Numerical studies have also shown that in general it outperforms competing heuristic policies such as the simpler single-index policy and constant order policy (Scheller-Wolf et al, 2003;Klosterhalfen et al, 2010). The good performance of the DIP is also highlighted by Sheopuri et al (2010, p. 743), who benchmark their heuristic policies against "the best available heuristic in the literature-the best dual index policy."…”

Section: Introductionmentioning

confidence: 98%

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Efficient optimization of the dual-index policy using Markov chains

Arts

Vuuren²,

Kiesmüller

2011

IIE Transactions

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This article considers the inventory control of a single product in one location with two supply sources facing stochastic demand. A premium is paid for each product ordered from the faster "emergency" supply source. Unsatisfied demand is backordered and ordering decisions are made periodically. The optimal control policy for this system is known to be complex. For this reason a type of base-stock policy known as the Dual-Index Policy (DIP) is used as the as control mechanism for this inventory system. Under this policy ordering decisions are based on a regular and an emergency inventory position and their corresponding order-up-to levels. Previous work on this policy assumes deterministic lead times and uses simulation to find the optimal order-up-to levels. This article provides an alternate proof for the result that separates the optimization of the DIP in two one-dimensional problems. An insight from this proof allows the model to be generalized to accommodate stochastic regular lead times and provide an approximate evaluation method based on limiting results so that optimization can be done without simulation. An extensive numerical study shows that this approach yields excellent results for deterministic lead times and good results for stochastic lead times.

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Section: Numerical Resultsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 98%

Efficient optimization of the dual-index policy using Markov chains

Arts

Vuuren²,

Kiesmüller

2011

IIE Transactions

Self Cite

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“…We refer the reader to Allon and Van Mieghem (2010), Bradley (2004), Veeraraghavan and Scheller-Wolf (2008), Sheopuri, Janakiraman, and Seshadri (2010), Klosterhalfen, Kiesmüller, andMinner (2011), Glock (2012) for multi-period dual-sourcing problems and to Minner (2003) for an overview of strategic and organisational aspects of dual sourcing.…”

Section: Literature Reviewmentioning

confidence: 99%

Dual sourcing under heavy-tailed demand: an extreme value theory approach

Bicer

2015

International Journal of Production Research

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We consider a single-period dual-sourcing problem in which a buyer purchases its products from two different suppliers and sells them to a market with uncertain demand. One supplier is cheaper but less responsive, whereas the other supplier is more responsive but more expensive. The buyer determines the order quantity from the low-cost supplier and the capacity level from the responsive supplier in such a way that maximises its profit. We apply extreme value theory to analyse the impact of tail heaviness of demand distribution on optimal dual-sourcing strategy. We numerically find that tail heaviness moderates the effect of increasing demand uncertainty on optimal order levels. We also show that dual sourcing allows companies to increase their fill rates cost effectively under heavy-tailed demand if the capacity reservation cost of the responsive supplier is relatively low.

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“…The issues of demand information sharing in supply chain management and the tradeoff between the cost and responsiveness of the order fulfillment process due to the presence of dual supply modes have been investigated by many researchers (e.g., Zhu et al, 2011;Bhatnagar et al, 2011;Klosterhalfen et al, 2011). Our paper is mainly related to two different research streams.…”

Section: Literature Reviewmentioning

confidence: 99%

Multi-item quick response system with budget constraint

Serel

2012

International Journal of Production Economics

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a b s t r a c tQuick response mechanisms based on effective use of up-to-date demand information help retailers to reduce their inventory management costs. We formulate a single-period inventory model for multiple products with dependent (multivariate normal) demand distributions and a given overall procurement budget. After placing orders based on an initial demand forecast, new market information is gathered and demand forecast is updated. Using this more accurate second forecast, the retailer decides the total stocking level for the selling season. The second order is based on an improved demand forecast, but it also involves a higher unit supply cost. To determine the optimal ordering policy, we use a computational procedure that entails solving capacitated multi-item newsboy problems embedded within a dynamic programming model. Various numerical examples illustrate the effects of demand variability and financial constraint on the optimal policy. It is found that existence of a budget constraint may lead to an increase in the initial order size. It is also observed that as the budget available decreases, the products with more predictable demand make up a larger share of the procurement expenditure.

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A comparison of the constant-order and dual-index policy for dual sourcing

Cited by 23 publications

References 10 publications

Efficient optimization of the dual-index policy using Markov chains

Efficient optimization of the dual-index policy using Markov chains

Dual sourcing under heavy-tailed demand: an extreme value theory approach

Multi-item quick response system with budget constraint

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