Supplier diversification: effect of discrete demand

Diversification under supply uncertainty has been adopted by manufacturers in order to improve performance. Ln the presence of multiple suppliers, it is essential to develop an operational policy in order to utilize the servi ces of different suppliers effectively. Anupindi and Akella (Manage. Sci. 3 9 (8) (1993) 944-963) consider two suppliers differing in cost and reliabil ity and develop the optimal inventory policy for the manufacturer under con tinuous demand distribution. The policy obtained by them indicates that the manufacturer should never order products from the more expensive supplier alone. In this paper, we consider the case where demand is discrete and pro vide examples to show that ordering products from the more expensive (and m ore reliable) supplier alone is optimal. We also provide sufficient conditi ons under which it is optimal to order a larger share from the more expensi ve supplier when demand is discrete. (C) 1999 Elsevier Science B.V. All rig hts reserved.