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Yield randomness, cost tradeoffs, and diversification in the EOQ model

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  • Yigal Gerchak
  • Mahmut Parlar

Abstract

Existing production/inventory models with random (variable) yield take the yield distribution as given. This work takes a step towards selecting the optimal yield randomness, jointly with lot sizing decisions. First, we analyze an EOQ model where yield variance and lot size are to be selected simultaneously. Two different cost structures are considered. Secondly, we consider source diversification (‘second sourcing’) as a means of reducing effective yield randomness, and trade its benefits against its costs. Conditions for the superiority of diversification between two sources with distinct yield distributions over a single source are derived. The optimal number of identical sources is also analyzed. Some comments on the congruence of the results with recent JIT practices are provided.

Suggested Citation

  • Yigal Gerchak & Mahmut Parlar, 1990. "Yield randomness, cost tradeoffs, and diversification in the EOQ model," Naval Research Logistics (NRL), John Wiley & Sons, vol. 37(3), pages 341-354, June.
    • Handle: RePEc:wly:navres:v:37:y:1990:i:3:p:341-354
    DOI: 10.1002/nav.3800370301
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    References listed on IDEAS

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    1. Kamran Moinzadeh & Hau L. Lee, 1987. "A continuous‐review inventory model with constant resupply time and defective items," Naval Research Logistics (NRL), John Wiley & Sons, vol. 34(4), pages 457-467, August.
    2. Joseph B. Mazzola & William F. McCoy & Harvey M. Wagner, 1987. "Algorithms and heuristics for variable‐yield lot sizing," Naval Research Logistics (NRL), John Wiley & Sons, vol. 34(1), pages 67-86, February.
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    Citations

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    Cited by:

    1. Bin Zhang & Zekai Lai & Qiangqiang Wang, 2021. "Multi-product dual sourcing problem with limited capacities," Operational Research, Springer, vol. 21(3), pages 2055-2075, September.
    2. Narendra Agrawal & Steven Nahmias, 1997. "Rationalization Of The Supplier Base In The Presence Of Yield Uncertainty," Production and Operations Management, Production and Operations Management Society, vol. 6(3), pages 291-308, September.
    3. Süleyman Demirel & Roman Kapuscinski & Man Yu, 2018. "Strategic Behavior of Suppliers in the Face of Production Disruptions," Management Science, INFORMS, vol. 64(2), pages 533-551, February.
    4. Gu, Chaocheng & Wei, Juan & Wei, Ying, 2021. "Sourcing under competition: The implications of supplier capital constraint and supply chain co-opetition," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 149(C).
    5. Asli Sencer Erdem & Mehmet Murat Fadilog̃lu & Süleyman Özekici, 2006. "An EOQ model with multiple suppliers and random capacity," Naval Research Logistics (NRL), John Wiley & Sons, vol. 53(1), pages 101-114, February.
    6. Qi Feng & Justin Jia & J. George Shanthikumar, 2019. "Dynamic Multisourcing with Dependent Supplies," Management Science, INFORMS, vol. 67(6), pages 2770-2786, June.
    7. Mehmet Güray Güler, 2019. "Advertising and forecasting investments of a newsvendor," 4OR, Springer, vol. 17(1), pages 45-73, March.
    8. Sunil Chopra & Gilles Reinhardt & Usha Mohan, 2007. "The importance of decoupling recurrent and disruption risks in a supply chain," Naval Research Logistics (NRL), John Wiley & Sons, vol. 54(5), pages 544-555, August.
    9. Kamran Moinzadeh & Steven Nahmias, 2000. "Adjustment Strategies for a Fixed Delivery Contract," Operations Research, INFORMS, vol. 48(3), pages 408-423, June.
    10. Victor Amelkin & Rakesh Vohra, 2019. "Yield Uncertainty and Strategic Formation of Supply Chain Networks," Papers 1907.09943, arXiv.org.
    11. Awi Federgruen & Nan Yang, 2008. "Selecting a Portfolio of Suppliers Under Demand and Supply Risks," Operations Research, INFORMS, vol. 56(4), pages 916-936, August.
    12. Gel, Esma S. & Salman, F. Sibel, 2022. "Dynamic ordering decisions with approximate learning of supply yield uncertainty," International Journal of Production Economics, Elsevier, vol. 243(C).

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