Comparison of single sourcing (with lot streaming) and dual-sourcing

Dual-sourcing is a strategy of ordering the material required to process a lot (order) from two suppliers, instead of a single supplier. This strategy has been well-studied in the literature and has been shown to reduce lead time. However, the additional ordering cost incurred for dual-sourcing makes this strategy unattractive. In this paper, we compare it to an alternative strategy of sourcing the required material from a single supplier, but by permitting its delivery in two partial shipments (referred to here as single-sourcing (with lot streaming)). We consider the case when the supplier lead time is stochastic and its distribution depends on the size of the lot processed. We show that single-sourcing (with lot streaming): (1) is less prone to stockouts than dual-sourcing, (2) incurs lower expected lead time for a given stockout risk when the time between orders in dual-sourcing is large enough, and (3) results in lower inventory levels given the same lead time performance and allowable stockout risk when the supplier’s processing times are significantly smaller than those of the manufacturer. The risk of delay in the arrival of the first sublot is smaller for dual-sourcing, however, this advantage decreases when time between orders is increased.

[1]  Suresh Kumar Goyal,et al.  A constant lot size model with equal and unequal sized batch shipments between production stages , 1986 .

[2]  Kenneth R. Baker,et al.  Basic Techniques for Lot Streaming , 1993, Oper. Res..

[3]  Peter Kelle,et al.  Stockout risk and order splitting , 2001 .

[4]  Hon-Shiang Lau,et al.  Optimal ordering policies with two suppliers when lead times and demands are all stochastic , 1993 .

[5]  Anders Thorstenson,et al.  Comparing sourcing strategies in two-echelon supply chains , 2014, Comput. Oper. Res..

[6]  A. Banerjee.  A JOINT ECONOMIC-LOT-SIZE MODEL FOR PURCHASER AND VENDOR , 1986 .

[7]  Suresh Kumar Goyal,et al.  A one-vendor multi-buyer integrated inventory model: A comment , 1995 .

[8]  Ranga V. Ramasesh,et al.  Sole Versus Dual Sourcing in Stochastic Lead-Time s, Q Inventory Models , 1991 .

[9]  Hon-Shiang Lau,et al.  Dual sourcing cost-optimization with unrestricted lead-time distributions and order-split proportions , 1994 .

[10]  D. Sculli,et al.  Analysis of a Continuous Review Stock-control Model with Multiple Suppliers , 1990 .

[11]  S. K. Goyal,et al.  Determination of Optimum Production Quantity for a Two-Stage Production System , 1977 .

[12]  Subhash C. Sarin,et al.  A review of lot streaming , 2013 .

[13]  J. Keith Ord,et al.  Multiple sourcing: The determination of lead times , 1991, Oper. Res. Lett..

[14]  Ranga V. Ramasesh,et al.  Note: Dual sourcing with nonidentical suppliers , 1993 .

[15]  Wen-Chyuan Chiang,et al.  Reducing Inventory Costs by Order Splitting in the Sole Sourcing Environment , 1996 .

[16]  S. Y. Wu,et al.  Stock Control with Two Suppliers and Normal Lead Times , 1981 .

[17]  A. Lau,et al.  Coordinating two suppliers with offsetting lead time and price performance , 1994 .

[18]  S. Goyal.  “A JOINT ECONOMIC‐LOT‐SIZE MODEL FOR PURCHASER AND VENDOR”: A COMMENT* , 1988 .

[19]  E. Silver,et al.  Safety stock reduction by order splitting , 1990 .

[20]  Chris N. Potts,et al.  Flow shop scheduling with lot streaming , 1989 .

[21]  Pandu R. Tadikamalla,et al.  Order splitting in single sourcing with scheduled-release orders , 2006, J. Oper. Res. Soc..

[22]  Roger M. Hill.  Order splitting in continuous review (Q, r) inventory models , 1996 .