Mitigating Supply Risk: Dual Sourcing or Process Improvement?
By Yimin Wang, Wendell G. Gilland, Brian Tomlin. Manufacturing & Service Operations Management, 2010
371 citations recorded by the source corpus.
Surveys suggest that supply chain risk is a growing issue for executives and that supplier reliability is of particular concern. A common mitigation strategy is for the buying firm to expend effort improving the reliability of its supply base. We explore a model in which a firm can source from multiple suppliers and/or exert effort to improve supplier reliability. For both random capacity and random yield types of supply uncertainty, we propose a model of process improvement in which improvement efforts (if successful) increase supplier reliability in the sense that the delivered quantity (for any given order quantity) is stochastically larger after improvement. We characterize the optimal procurement quantities and improvement efforts and generate managerial insights. For random capacity, improvement is increasingly favored over dual sourcing as the supplier cost heterogeneity increases, but dual sourcing is favored over improvement if the supplier reliability heterogeneity is high. In the random yield model, increasing cost heterogeneity can reduce the attractiveness of improvement, and improvement can be favored over dual sourcing if the reliability heterogeneity is high. A combined strategy (improvement and dual sourcing) can provide significant value if suppliers are very unreliable and/or capacity is low relative to demand.
Subfields: Management Information Systems, Strategy and Management
View Paper: https://www.semanticscholar.org/paper/d9843d0674119497707e2d7aaa00eaa3e6edb335
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In Management Information Systems
In Strategy and Management
Citations in the corpus
- Managing Risk of Supply Disruptions: Incentives for Capacity Restoration (2013, background): “To deal with supply disruption, which is modeled as an all-or-nothing yield model, various operational tools have been studied including multiple sourcing (Anupindi and Akella 1993, Gurnani et al. 1996), and reliability and process improvement (Liu et al. 2010, Wang et al. 2010).”
- Managing Disruptions in Decentralized Supply Chains with Endogenous Supply Process Reliability (2014, background): “This is consistent with a decentralized decision-making structure encountered in practice and in contrast to the centralized problem setting in Wang et al. (2010).”