DUAL SOURCED SUPPLY CHAINS: THE DISCOUNT SUPPLIER OPTION

Document Type

Journal Article

Publication Date

1999

Subject Area

operations - traffic, planning - methods, organisation - management

Keywords

Traffic management (Physical distribution), Supply chain management, Suppliers, Physical distribution, Inventory, Inventories, Heuristic methods, Distribution, Discount

Abstract

The authors examine the dynamics of a supply chain that has the option of using two suppliers -- one reliable, and the other unreliable. The unreliable supplier is characterized by long lead-time mean and variance. Though the use of the unreliable supplier might potentially warrant higher inventory and transportation costs, it is attractive because of the willingness of the supplier to provide a discount on the purchase price. The authors analyze the cost economics of two suppliers in a broader inventory-logistics framework, one that includes in-transit inventories and transportation costs. In this broader perspective, the paper provides a simple heuristic and sample exchange curves to determine: (i) if the order should be split between the suppliers; and (ii) if the order is split, the amount of discount and the fraction ordered to the secondary supplier to make order-splitting a worth-while policy.

Comments

Transportation Research Part E Home Page: http://www.sciencedirect.com/science/journal/13665545

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