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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

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.

Suggested Citation

  • Klosterhalfen, Steffen & Kiesmüller, Gudrun & Minner, Stefan, 2011. "A comparison of the constant-order and dual-index policy for dual sourcing," International Journal of Production Economics, Elsevier, vol. 133(1), pages 302-311, September.
    • Handle: RePEc:eee:proeco:v:133:y:2011:i:1:p:302-311
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    References listed on IDEAS

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    1. 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.
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    Citations

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    Cited by:

    1. Chaolin Yang & Diyuan Huang & Chenyang Xu, 2022. "Multi-index base-stock policy for inventory systems with multiple capacitated suppliers," OR Spectrum: Quantitative Approaches in Management, Springer;Gesellschaft für Operations Research e.V., vol. 44(1), pages 155-177, March.
    2. Zhu, Stuart X., 2015. "Analysis of dual sourcing strategies under supply disruptions," International Journal of Production Economics, Elsevier, vol. 170(PA), pages 191-203.
    3. Linwei Xin & David A. Goldberg, 2018. "Asymptotic Optimality of Tailored Base-Surge Policies in Dual-Sourcing Inventory Systems," Management Science, INFORMS, vol. 64(1), pages 437-452, January.
    4. Woerner, Stefan & Laumanns, Marco & Zenklusen, Rico & Fertis, Apostolos, 2015. "Approximate dynamic programming for stochastic linear control problems on compact state spaces," European Journal of Operational Research, Elsevier, vol. 241(1), pages 85-98.
    5. Boulaksil, Youssef & Hamdouch, Younes & Ghoudi, Kilani & Fransoo, Jan C., 2021. "Comparing policies for the stochastic multi-period dual sourcing problem from a supply chain perspective," Other publications TiSEM 242598b9-99de-4a3c-a1a9-4, Tilburg University, School of Economics and Management.
    6. Boulaksil, Youssef & Hamdouch, Younes & Ghoudi, Kilani & Fransoo, Jan C., 2021. "Comparing policies for the stochastic multi-period dual sourcing problem from a supply chain perspective," International Journal of Production Economics, Elsevier, vol. 232(C).
    7. Younes Hamdouch & Youssef Boulaksil & Kilani Ghoudi, 2023. "Dual sourcing inventory management with nonconsecutive lead times from a supply chain perspective: a numerical study," OR Spectrum: Quantitative Approaches in Management, Springer;Gesellschaft für Operations Research e.V., vol. 45(3), pages 1013-1041, September.
    8. Serel, Doğan A., 2012. "Multi-item quick response system with budget constraint," International Journal of Production Economics, Elsevier, vol. 137(2), pages 235-249.
    9. 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.
    10. 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.
    11. Dong, Chuanwen & Transchel, Sandra & Hoberg, Kai, 2018. "An inventory control model for modal split transport: A tailored base-surge approach," European Journal of Operational Research, Elsevier, vol. 264(1), pages 89-105.

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