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Discrete Dynamics in Nature and Society
Volume 2016, Article ID 6716058, 16 pages
http://dx.doi.org/10.1155/2016/6716058
Research Article

Backup Sourcing Decisions for Coping with Supply Disruptions under Long-Term Horizons

1School of Business, Hohai University, Nanjing, Jiangsu 211100, China
2Institute of Systems Engineering, Faculty of Management and Economics, Dalian University of Technology, Dalian, Liaoning 116023, China

Received 27 April 2016; Accepted 24 August 2016

Academic Editor: Elmetwally Elabbasy

Copyright © 2016 Jing Hou and Lijun Sun. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

This paper studies a buyer’s inventory control problem under a long-term horizon. The buyer has one major supplier that is prone to disruption risks and one backup supplier with higher wholesale price. Two kinds of sourcing methods are available for the buyer: single sourcing with/without contingent supply and dual sourcing. In contingent sourcing, the backup supplier is capacitated and/or has yield uncertainty, whereas in dual sourcing the backup supplier has an incentive to offer output flexibility during disrupted periods. The buyer’s expected cost functions and the optimal base-stock levels using each sourcing method under long-term horizon are obtained, respectively. The effects of three risk parameters, disruption probability, contingent capacity or uncertainty, and backup flexibility, are examined using comparative studies and numerical computations. Four sourcing methods, namely, single sourcing with contingent supply, dual sourcing, and single sourcing from either of the two suppliers, are also compared. These findings can be used as a valuable guideline for companies to select an appropriate sourcing strategy under supply disruption risks.