An Approximate Policy for a Dual-Sourcing Inventory Model with Positive Lead Times and Binomial Yield

22 Pages Posted: 5 Nov 2014

See all articles by Wanrong Ju

Wanrong Ju

Erasmus University Rotterdam (EUR)

Adriana F. Gabor

Erasmus University Rotterdam (EUR)

J.C.W. van Ommeren

University of Twente

Date Written: November 3, 2014

Abstract

This paper studies the inventory system of a retailer who orders his products from two supply sources, a local one that is responsive and reliable, but expensive, and a global one that is low-cost but less reliable. The deliveries from the global source only partially satisfy the quality requirements. We model this situation with a dual-sourcing inventory model with positive lead times and random yield. We propose a dual-index order-up-to policy (DOP) based on approximating the inventory model with an unreliable supplier by a sequence of dual-sourcing models with reliable suppliers and suitably modified demand distributions. Numerical results show that the performance of this heuristic is close to that of the optimal DOP. Moreover, we extend the heuristic to models with advance yield information and study its impact on the total inventory costs.

Keywords: Inventory, Yield uncertainty, Dual-sourcing

Suggested Citation

Ju, Wanrong and Gabor, Adriana F. and van Ommeren, J.C.W., An Approximate Policy for a Dual-Sourcing Inventory Model with Positive Lead Times and Binomial Yield (November 3, 2014). Available at SSRN: https://ssrn.com/abstract=2518412 or http://dx.doi.org/10.2139/ssrn.2518412

Wanrong Ju (Contact Author)

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Adriana F. Gabor

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

J.C.W. Van Ommeren

University of Twente ( email )

Postbus 217
Twente
Netherlands

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