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

45 Pages Posted: 17 Mar 2018 Last revised: 5 May 2020

Date Written: May 4, 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 Van Mieghem, Jan Albert, Dual Sourcing and Smoothing Under Non-Stationary Demand Time Series: Re-Shoring with Speedfactories (May 4, 2020). 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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