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Managing Supply Disruptions when Sourcing from Reliable and Unreliable Suppliers
Author(s) -
Hu Bin,
Kostamis Dimitris
Publication year - 2015
Publication title -
production and operations management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.279
H-Index - 110
eISSN - 1937-5956
pISSN - 1059-1478
DOI - 10.1111/poms.12293
Subject(s) - robustness (evolution) , computer science , strategic sourcing , business , operations research , order (exchange) , industrial organization , mathematical optimization , microeconomics , operations management , econometrics , risk analysis (engineering) , economics , marketing , mathematics , strategic planning , finance , biochemistry , chemistry , strategic financial management , gene
We study a manufacturer's optimal multiple‐sourcing strategies when some but not all suppliers face risks of complete supply disruptions. Using an approximate model, we show that the optimal unreliable orders are ranked by a simple and intuitive criterion, and are invariant of minor market size changes. Furthermore, when ordering from one reliable and one unreliable supplier, we show that the total order quantity and its allocation between the two suppliers are independent decisions. We then test and confirm the robustness of the insights without the approximation, as well as when we relax various assumptions.