Dual Sourcing and Smoothing Under Non-Stationary Demand Time Series: Re-Shoring with Speedfactories

Management Science

45 Pages Posted: 17 Mar 2018 Last revised: 15 Dec 2020

See all articles by Robert N. Boute

Robert N. Boute

Vlerick Leuven Gent Management School

Stephen M. Disney

Centre for Simulation, Analytics, and Modelling, The University of Exeter Business School

Joren Gijsbrechts

Catholic University of Portugal (UCP) - Catolica Lisbon School of Business and Economics

Jan A. Van Mieghem

Northwestern University - Kellogg School of Management

Date Written: November 28, 2020

Abstract

We investigate near-shoring a small part of the global production to local \emph{SpeedFactories} that serve only the variable demand. The short lead time of the responsive SpeedFactory reduces the risk of making large volumes in advance, yet it does not involve a complete re-shoring of demand. Using a break-even analysis we investigate the lead time, demand, and cost characteristics that make dual sourcing with a SpeedFactory desirable compared to complete off-shoring. Our analysis employs a linear generalization of the celebrated order-up-to inventory policy to settings where capacity costs exist. The policy allows for order smoothing to reduce capacity costs and performs well relative to the (unknown) optimal policy. We highlight the significant impact of auto-correlated and non-stationary demand series, which are prevalent in practice yet challenging to analyze, on the economic benefit of re-shoring. Methodologically, we adopt a linear policy and normally distributed demand and use $Z-$transforms to present exact analyses.

Keywords: Inventory Management, Order Smoothing, Order-Up-To Policy, Auto-Regressive Demand, Integrated Moving Average Demand, Global Outsourcing, Dual Sourcing, Z−transform

JEL Classification: C44, C61

Suggested Citation

Boute, Robert N. and Disney, Stephen M. and Gijsbrechts, Joren and Van Mieghem, Jan Albert, Dual Sourcing and Smoothing Under Non-Stationary Demand Time Series: Re-Shoring with Speedfactories (November 28, 2020). Management Science, Available at SSRN: https://ssrn.com/abstract=3140083 or http://dx.doi.org/10.2139/ssrn.3140083

Robert N. Boute

Vlerick Leuven Gent Management School ( email )

Library
REEP 1
Gent, BE-9000
Belgium

Stephen M. Disney

Centre for Simulation, Analytics, and Modelling, The University of Exeter Business School ( email )

Streatham Court
Exeter, EX1 3XN
United Kingdom

Joren Gijsbrechts

Catholic University of Portugal (UCP) - Catolica Lisbon School of Business and Economics ( email )

Palma de Cima
Lisbon, 1649-023
Portugal

Jan Albert Van Mieghem (Contact Author)

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

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