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Dual Sourcing and Smoothing Under Nonstationary Demand Time Series: Reshoring with SpeedFactories

Author

Listed:
  • Robert N. Boute

    (Research Center for Operations Management, KU Leuven, 3000 Leuven, Belgium; Technology & Operations Management Area, Vlerick Business School, 3000 Leuven, Belgium)

  • Stephen M. Disney

    (Centre for Simulation, Analytics and Modelling, University of Exeter Business School, Exeter, EX4 4PU, United Kingdom)

  • Joren Gijsbrechts

    (Católica Lisbon School of Business & Economics, Lisbon, 1649-023, Portugal)

  • Jan A. Van Mieghem

    (Kellogg School of Management, Northwestern University, Evanston, Illinois 60208)

Abstract

We investigate near-shoring a small part of the global production to local 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 reshoring 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 with complete off-shoring. Our analysis uses 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 nonstationary demand series, which are prevalent in practice yet challenging to analyze, on the economic benefit of reshoring. Methodologically, we adopt a linear policy and normally distributed demand and use Z –transforms to present exact analyses.

Suggested Citation

  • Robert N. Boute & Stephen M. Disney & Joren Gijsbrechts & Jan A. Van Mieghem, 2022. "Dual Sourcing and Smoothing Under Nonstationary Demand Time Series: Reshoring with SpeedFactories," Management Science, INFORMS, vol. 68(2), pages 1039-1057, February.
    • Handle: RePEc:inm:ormnsc:v:68:y:2022:i:2:p:1039-1057
    DOI: 10.1287/mnsc.2020.3951
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    References listed on IDEAS

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