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

47 Pages Posted: 17 Mar 2018 Last revised: 9 Mar 2019

Date Written: March 7, 2019

Abstract

We investigate the emerging trend of near-shoring a small part of the global production to local SpeedFactories. 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. We propose order rules that extend the celebrated inventory optimal order-up-to replenishment policy to settings where capacity costs exist and demonstrate their excellent performance. We highlight the significant impact of autocorrelated and non-stationary demand series, which are prevalent in practice yet challenging to analyze, on the economic benefit of re-shoring. Methodologically, we adopt Z-transforms and present exact analyses of several discrete-time linear production-inventory models.

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 Van Mieghem, Jan Albert, Dual Sourcing and Smoothing Under Non-Stationary Demand Time Series: Re-Shoring with Speedfactories (March 7, 2019). 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

Cardiff University - Cardiff Business School ( email )

Aberconway Building
Colum Drive
Cardiff, CF10 3EU
United Kingdom

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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