Dual sourced supply chains: the discount supplier option

In this paper, we examine the dynamics of a supply chain that has the optio n of using two suppliers one reliable, and the other unreliable. We charact erize the unreliable supplier with long lead-time mean and variance. Althou gh the use of the unreliable supplier might potentially warrant higher inve ntory and transportation costs, it is attractive because of the willingness of the supplier to provide a discount on the purchase price. We analyze th e cost economics of two suppliers in a broader inventory-logistics framewor k, one that includes in-transit inventories and transportation costs. In th is broader perspective, we provide a simple heuristic and sample exchange c urves to determine: (i) if the order should be split between the suppliers; and (ii) if the order is split, the amount of discount and the fraction or dered to the secondary supplier to make order-splitting a worth-while polic y. (C) 1999 Published by Elsevier Science Ltd. All rights reserved.