Dual Sourcing and Smoothing Under Non-Stationary Demand Time Series: Re-Shoring with Speedfactories
42 Pages Posted: 17 Mar 2018
Date Written: March 13, 2018
We investigate the emerging trend of near-shoring a small part of the global production back 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 breakeven analysis we investigate the lead time, demand, and cost characteristics that make dual sourcing with a SpeedFactory desirable compared to off-shoring to a single supplier. 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 an exact analysis of several discrete-time linear 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: Suggested Citation