Optimal procurement strategies from suppliers with random yield and all-or-nothing risks
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Supply uncertainty has been elevated to a strategic level concern in driving supply chain success. This paper considers that a firm faces a deterministic demand and procures from two unreliable suppliers: one is subject to a random disruption and might deliver all or nothing of the firm’s order, while the other one exposes to a random yield risk for the firm’s order. We explore the models of no recourse and ordering with recourse, and derive optimal solutions for each model. We provide the conditions under which single or dual sourcing strategy should be used. We also compare the decisions and profits among different models through computational experiments and find that it is more beneficial to order from the relatively expensive supplier as a backup source.
KeywordsDual sourcing Random yield All-or-nothing disruption Recourse
This work was supported by the National Natural Science Foundation of China (NSFC) Nos. 71002077 and 71372002, and the Fundamental Research Funds for the Central Universities No. NKZXB1228.
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