Dual Sourcing Inventory Systems: On Optimal Policies and the Value of Costless Returns
Ganesh Janakiraman, Sridhar Seshadri
Production and Operations Management · 2017 · Volume 26 · Issue 2
Abstract
We study dual sourcing inventory systems with backordering and with stationary, stochastic demands. The two supply sources differ in their unit prices and lead times. We focus on the option of making costless returns to the cheaper, longer leadtime supplier. We show that the value of this option is zero. Our analysis leading to this result includes the derivation of several structural properties of the optimal policies for dual sourcing systems with and without the return option.
Keywords
inventory/production systems, sample-path analysis, dual sourcing, multiple suppliers, optimal policies
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