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A comparison of the constant-order and dual-index policy for dual sourcing

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  • Klosterhalfen, Steffen
  • Kiesmüller, Gudrun
  • Minner, Stefan
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    Abstract

    We analyze a single-product, periodic-review, stochastic demand inventory model with backorders and two supply options, a regular and a more expensive expedited one, with deterministic, offsetting lead times. Since the optimal policy for such a problem is generally unknown, several simpler policies have been proposed in the literature, e.g., the single-index (SIP), dual-index (DIP), or constant-order policy (COP). In previous research the DIP has been found to perform closely to the optimal policy in specific numerical settings. The COP, on the other hand, is very appealing from a practical point of view. We explore the relative cost performance of these two policies in a numerical study to gain insights into appropriate policy choices. We find that in settings, where dual sourcing is most valuable, the simpler COP delivers satisfactory results, sometimes even better ones than the DIP, and therefore represents a legitimate policy alternative for practical situations.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0925527310000538
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    Bibliographic Info

    Article provided by Elsevier in its journal International Journal of Production Economics.

    Volume (Year): 133 (2011)
    Issue (Month): 1 (September)
    Pages: 302-311

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    Handle: RePEc:eee:proeco:v:133:y:2011:i:1:p:302-311

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    Web page: http://www.elsevier.com/locate/ijpe

    Related research

    Keywords: Dual sourcing Dual index Constant order Multiple suppliers;

    References

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    1. Yoichiro Fukuda, 1964. "Optimal Policies for the Inventory Problem with Negotiable Leadtime," Management Science, INFORMS, vol. 10(4), pages 690-708, July.
    2. Minner, Stefan, 2003. "Multiple-supplier inventory models in supply chain management: A review," International Journal of Production Economics, Elsevier, vol. 81(1), pages 265-279, January.
    3. Janssen, Fred & de Kok, Ton, 1999. "A two-supplier inventory model," International Journal of Production Economics, Elsevier, vol. 59(1-3), pages 395-403, March.
    4. Chiang, Chi, 2007. "Optimal control policy for a standing order inventory system," European Journal of Operational Research, Elsevier, vol. 182(2), pages 695-703, October.
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    Cited by:
    1. Serel, Doğan A., 2012. "Multi-item quick response system with budget constraint," International Journal of Production Economics, Elsevier, vol. 137(2), pages 235-249.
    2. Arts, Joachim & Kiesmüller, Gudrun P., 2013. "Analysis of a two-echelon inventory system with two supply modes," European Journal of Operational Research, Elsevier, vol. 225(2), pages 263-272.

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