IDEAS home Printed from https://ideas.repec.org/a/eee/matcom/v134y2017icp79-98.html
   My bibliography  Save this article

A model for the analysis of procurement strategies in the economic order interval environment

Author

Listed:
  • Montanari, Roberto
  • Bottani, Eleonora
  • Shekarian, Ehsan
  • Kazemi, Nima

Abstract

The paper analyzes two different procurement strategies, i.e. single sourcing and double sourcing, for a buyer that adopts the economic order interval (EOI) reorder policy. The analysis consists of two steps. We start by developing a simulation model, which reproduces the two procurement strategies. In the single sourcing scenario, the buyer exploits only one supplier for purchasing. This supplier owns a defined level of reliability, i.e. a given capacity of providing the product when requested. In the case of double sourcing, besides the first supplier, the buyer can exploit a second vendor, which is always able to deliver the product required (reliability=100%); however, it sells its product at a higher price, generating higher cost. The simulation model, built on Microsoft ExcelTM, allows deriving the total cost of the system under the two scenarios, thus helping the buyer select the most suitable (i.e. minimum cost) purchasing strategy. As a second step, for the double sourcing scenario, the analytic formulae of the total cost as a function of the supplier’s reliability are derived and a sensitivity analysis is carried out to investigate how the total cost changes as a function of the input parameters.

Suggested Citation

  • Montanari, Roberto & Bottani, Eleonora & Shekarian, Ehsan & Kazemi, Nima, 2017. "A model for the analysis of procurement strategies in the economic order interval environment," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 134(C), pages 79-98.
    • Handle: RePEc:eee:matcom:v:134:y:2017:i:c:p:79-98
    DOI: 10.1016/j.matcom.2016.10.007
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0378475416302002
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.matcom.2016.10.007?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. 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.
    2. Ghodsypour, S. H. & O'Brien, C., 1998. "A decision support system for supplier selection using an integrated analytic hierarchy process and linear programming," International Journal of Production Economics, Elsevier, vol. 56(1), pages 199-212, September.
    3. Weber, Charles A. & Current, John R. & Benton, W. C., 1991. "Vendor selection criteria and methods," European Journal of Operational Research, Elsevier, vol. 50(1), pages 2-18, January.
    4. Ranga V. Ramasesh & J. Keith Ord & Jack C. Hayya & Andrew Pan, 1991. "Sole Versus Dual Sourcing in Stochastic Lead-Time (s, Q) Inventory Models," Management Science, INFORMS, vol. 37(4), pages 428-443, April.
    5. Burke, Gerard J. & Carrillo, Janice E. & Vakharia, Asoo J., 2007. "Single versus multiple supplier sourcing strategies," European Journal of Operational Research, Elsevier, vol. 182(1), pages 95-112, October.
    6. Eleonora Bottani & Gino Ferretti & Roberto Montanari & Giuseppe Vignali, 2012. "The impact of (S,s) policy on supply network performance: a simulation study," International Journal of Business Performance and Supply Chain Modelling, Inderscience Enterprises Ltd, vol. 4(2), pages 164-201.
    7. Parlar, Mahmut, 1997. "Continuous-review inventory problem with random supply interruptions," European Journal of Operational Research, Elsevier, vol. 99(2), pages 366-385, June.
    8. Chaudhry, Sohail S. & Forst, Frank G. & Zydiak, James L., 1993. "Vendor selection with price breaks," European Journal of Operational Research, Elsevier, vol. 70(1), pages 52-66, October.
    9. Sawik, Tadeusz, 2014. "Joint supplier selection and scheduling of customer orders under disruption risks: Single vs. dual sourcing," Omega, Elsevier, vol. 43(C), pages 83-95.
    10. P D Berger & A Z Zeng, 2006. "Single versus multiple sourcing in the presence of risks," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 57(3), pages 250-261, March.
    11. Xia, Weijun & Wu, Zhiming, 2007. "Supplier selection with multiple criteria in volume discount environments," Omega, Elsevier, vol. 35(5), pages 494-504, October.
    12. Maqbool Dada & Nicholas C. Petruzzi & Leroy B. Schwarz, 2007. "A Newsvendor's Procurement Problem when Suppliers Are Unreliable," Manufacturing & Service Operations Management, INFORMS, vol. 9(1), pages 9-32, August.
    13. Brian Tomlin & Yimin Wang, 2005. "On the Value of Mix Flexibility and Dual Sourcing in Unreliable Newsvendor Networks," Manufacturing & Service Operations Management, INFORMS, vol. 7(1), pages 37-57, June.
    14. Swift, Cathy Owens, 1995. "Preferences for single sourcing and supplier selection criteria," Journal of Business Research, Elsevier, vol. 32(2), pages 105-111, February.
    15. Glock, C. H., 2012. "Single sourcing versus dual sourcing under conditions of learning," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 57813, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    16. E A Silver & H Naseraldin & D P Bischak, 2009. "Determining the reorder point and order-up-to-level in a periodic review system so as to achieve a desired fill rate and a desired average time between replenishments," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 60(9), pages 1244-1253, September.
    17. Schmitt, Amanda J. & Snyder, Lawrence V. & Shen, Zuo-Jun Max, 2010. "Inventory systems with stochastic demand and supply: Properties and approximations," European Journal of Operational Research, Elsevier, vol. 206(2), pages 313-328, October.
    18. Nima Kazemi & Ehsan Ehsani & Christoph H. Glock & Kurt Schwindl, 2015. "A mathematical programming model for a multi-objective supplier selection and order allocation problem with fuzzy objectives," International Journal of Services and Operations Management, Inderscience Enterprises Ltd, vol. 21(4), pages 435-465.
    19. Kazemi, N. & Ehsani, E. & Glock, C. H., 2014. "Multi-objective supplier selection and order allocation under quantity discounts with fuzzy goals and fuzzy constraints," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 62097, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    20. Disney, Stephen M. & Lambrecht, Marc R., 2008. "On Replenishment Rules, Forecasting, and the Bullwhip Effect in Supply Chains," Foundations and Trends(R) in Technology, Information and Operations Management, now publishers, vol. 2(1), pages 1-80, April.
    21. Kazemi, N. & Ehsani, E. & Glock, C. H. & Schwindl, K., 2015. "A mathematical programming model for a multi-objective supplier selection and order allocation problem with fuzzy objectives," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 65220, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    22. Yu, Haisheng & Zeng, Amy Z. & Zhao, Lindu, 2009. "Single or dual sourcing: decision-making in the presence of supply chain disruption risks," Omega, Elsevier, vol. 37(4), pages 788-800, August.
    23. Bottani, Eleonora & Rizzi, Antonio, 2008. "Economical assessment of the impact of RFID technology and EPC system on the fast-moving consumer goods supply chain," International Journal of Production Economics, Elsevier, vol. 112(2), pages 548-569, April.
    24. S. Özekici & M. Parlar, 1999. "Inventory models with unreliable suppliersin a random environment," Annals of Operations Research, Springer, vol. 91(0), pages 123-136, January.
    25. Mohebbi, Esmail, 2004. "A replenishment model for the supply-uncertainty problem," International Journal of Production Economics, Elsevier, vol. 87(1), pages 25-37, January.
    26. Samuel Eilon & Joseph Elmaleh, 1970. "Adaptive Limits in Inventory Control," Management Science, INFORMS, vol. 16(8), pages 533-548, April.
    27. Ahiska, S. Sebnem & Appaji, Samyuktha R. & King, Russell E. & Warsing, Donald P., 2013. "A Markov decision process-based policy characterization approach for a stochastic inventory control problem with unreliable sourcing," International Journal of Production Economics, Elsevier, vol. 144(2), pages 485-496.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    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. Faiza Hamdi & Ahmed Ghorbel & Faouzi Masmoudi & Lionel Dupont, 2018. "Optimization of a supply portfolio in the context of supply chain risk management: literature review," Journal of Intelligent Manufacturing, Springer, vol. 29(4), pages 763-788, April.
    3. Svoboda, Josef & Minner, Stefan & Yao, Man, 2021. "Typology and literature review on multiple supplier inventory control models," European Journal of Operational Research, Elsevier, vol. 293(1), pages 1-23.
    4. Taleizadeh, Ata Allah & Tafakkori, Keivan & Thaichon, Park, 2021. "Resilience toward supply disruptions: A stochastic inventory control model with partial backordering under the base stock policy," Journal of Retailing and Consumer Services, Elsevier, vol. 58(C).
    5. Eng, Shao Wei Lester & Chew, Ek Peng & Lee, Loo Hay, 2014. "Impacts of supplier knowledge sharing competences and production capacities on radical innovative product sourcing," European Journal of Operational Research, Elsevier, vol. 232(1), pages 41-51.
    6. Pritee Ray & Mamata Jenamani, 2016. "Sourcing decision under disruption risk with supply and demand uncertainty: A newsvendor approach," Annals of Operations Research, Springer, vol. 237(1), pages 237-262, February.
    7. Sarkar, Ashutosh & Mohapatra, Pratap K.J., 2009. "Determining the optimal size of supply base with the consideration of risks of supply disruptions," International Journal of Production Economics, Elsevier, vol. 119(1), pages 122-135, May.
    8. Pritee Ray & Mamata Jenamani, 2016. "Sourcing decision under disruption risk with supply and demand uncertainty: A newsvendor approach," Annals of Operations Research, Springer, vol. 237(1), pages 237-262, February.
    9. Serel, Dogan A., 2008. "Inventory and pricing decisions in a single-period problem involving risky supply," International Journal of Production Economics, Elsevier, vol. 116(1), pages 115-128, November.
    10. Luo, Sha & Ahiska, S. Sebnem & Fang, Shu-Cherng & King, Russell E. & Warsing, Donald P. & Wu, Shuohao, 2021. "An analysis of optimal ordering policies for a two-supplier system with disruption risk," Omega, Elsevier, vol. 105(C).
    11. Firouz, Mohammad & Keskin, Burcu B. & Melouk, Sharif H., 2017. "An integrated supplier selection and inventory problem with multi-sourcing and lateral transshipments," Omega, Elsevier, vol. 70(C), pages 77-93.
    12. Maheswar Singh Mahapatra & Pravash Chandra Pradhan & J. K. Jha, 2022. "Sourcing decisions with order allocation under supply disruption risk considering quantitative and qualitative criteria," Operational Research, Springer, vol. 22(4), pages 3291-3333, September.
    13. Chen, Kebing & Xiao, Tiaojun, 2015. "Outsourcing strategy and production disruption of supply chain with demand and capacity allocation uncertainties," International Journal of Production Economics, Elsevier, vol. 170(PA), pages 243-257.
    14. Fattahi, Mohammad, 2021. "Resilient procurement planning for supply chains: A case study for sourcing a critical mineral material," Resources Policy, Elsevier, vol. 74(C).
    15. Seung Hwan Jung, 2020. "Offshore versus Onshore Sourcing: Quick Response, Random Yield, and Competition," Production and Operations Management, Production and Operations Management Society, vol. 29(3), pages 750-766, March.
    16. Yim, Andrew, 2010. "Quality Cost and Failure Risk in the Choice of Single versus Multiple Sourcing," MPRA Paper 27858, University Library of Munich, Germany.
    17. Xu, Jianjun & Keblis, Matthew F. & Feng, Youyi & Chang, Yanling, 2017. "Optimal sourcing from a pool of suppliers with nonidentical salvage values," International Journal of Production Economics, Elsevier, vol. 193(C), pages 392-405.
    18. Schmitt, Amanda J. & Sun, Siyuan Anthony & Snyder, Lawrence V. & Shen, Zuo-Jun Max, 2015. "Centralization versus decentralization: Risk pooling, risk diversification, and supply chain disruptions," Omega, Elsevier, vol. 52(C), pages 201-212.
    19. Ching-Ter Chang & Huang-Mu Chen & Zheng-Yun Zhuang, 2014. "Integrated multi-choice goal programming and multi-segment goal programming for supplier selection considering imperfect-quality and price-quantity discounts in a multiple sourcing environment," International Journal of Systems Science, Taylor & Francis Journals, vol. 45(5), pages 1101-1111, May.
    20. Zhu, Stuart X., 2015. "Dynamic replenishment from two sources with different yields, costs, and leadtimes," International Journal of Production Economics, Elsevier, vol. 165(C), pages 79-89.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:matcom:v:134:y:2017:i:c:p:79-98. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.journals.elsevier.com/mathematics-and-computers-in-simulation/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.