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Component sourcing under disruption risk

Author

Listed:
  • Ping Su
  • Xiangling Hu
  • Jaideep Motwani

Abstract

This paper considers the components sourcing problem for a manufacturer that makes a product consisting of two key components under supply disruption risks. Most of operations management papers focus on the sourcing decision of one component. However, many products are made of multiple components and the shortage of one component affects the production of the final product. In our model, the manufacturer has the option to source each component from one of the two suppliers at different costs. Both suppliers face supply disruption risks. One of the components is also available on the spot market at a higher cost. We provide the complete characterisation of conditions under which one sourcing strategy outperforms another strategy. We summarise the conditions for each of the four sourcing strategies to be optimal. We also study the impact of the key parameters such as selling price, sourcing costs, spot market price, disruption risks and supplier setup cost on the optimal sourcing strategy.

Suggested Citation

  • Ping Su & Xiangling Hu & Jaideep Motwani, 2023. "Component sourcing under disruption risk," International Journal of Mathematics in Operational Research, Inderscience Enterprises Ltd, vol. 24(2), pages 300-318.
    • Handle: RePEc:ids:ijmore:v:24:y:2023:i:2:p:300-318
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