Sole sourcing versus dual sourcing under stochastic demands and lead times

Abstract

The use of a single vendor for each inventoried item is usually assumed in most of the inventory models. However, there are situations where the use of more than one vendor should be considered, especially when lead times are stochastic. This research presents a theoretical investigation of the effect of cost structures on the relative performance of sole‐sourcing versus dual‐sourcing inventory control policies. We show that except for cases where the ordering cost is high, the lead‐time variability is low, or the customer service level is low, dual sourcing performs better than sole sourcing under the normally distributed demand and shifted‐exponential lead times. Moreover, the computational results indicate the dual sourcing provides a better service level than sole sourcing at the optimal solutions, and that dual sourcing results in larger order quantities than sole sourcing, which suggests that attractive quantity discounts may not be in jeopardy when dual sourcing is employed. Finally, because it is generally known that multiple sourcing can enhance the competition among suppliers, material managers should consider splitting purchase orders when two equally qualified suppliers are available. © 1994 John Wiley & Sons, Inc.

Reducing lead time risk through multiple sourcing: the case of stochastic demand and variable lead time

“…that all problem parameters are identical for the suppliers (note that this assumption is not uncommon in the literature, cf. for example Kelle and Silver, 1990b;Ramasesh et al,1991;Chiang and Benton, 1994;Hill, 1996;Ganeshan, 1999). This scenario is representative for a variety of industries, for example for industries that produce standard mechanical components for automotive manufacturers or for commodity markets (see for example Oladi and Gilbert, 2009;Smith and Thanassoulis, 2008).…”

“…The authors showed that order splitting lowers cycle inventory and that contracting a second supplier with a larger mean lead time than the first supplier may not necessarily increase expected total costs. Chiang and Benton (1994) provided a comparative analysis of single and dual sourcing practices under normally distributed demand and shifted-exponential lead times. Numerical studies indicated that dual sourcing provides a higher service level and results in higher order quantities than single sourcing.…”

Multiple-supplier inventory models in supply chain management: A review

“…This approach is especially useful in order to analyze the trade off between different lead time characteristics (mean, variability) and purchase price differentials. Chiang and Benton (1994) investigate a model with normally distributed demands and shifted exponentially distributed lead times. Both suppliers are identical with respect to their lead time characteristics and purchase prices.…”

Analysis of a dual-sourcing service provision game with symmetric and asymmetric vendors

“…Such a mechanism of competing directly on service quality or the attributes of service quality is not uncommon in the literature, where the attributes of service quality may include fill rate [17,30,31], lead time [15,32], response time [33,34], waiting-time standard facility [35,36], and expected per-packet delay [37]. Bernstein and Federgruen [30], for instance, investigated a general equilibrium inventory model in which retailers facing random demand compete on price and fill rate under three competition scenarios.…”