TY - JOUR
T1 - A continuous-review model for dual intercontinental and domestic outsourcing
AU - Co, Henry C.
AU - David, Israel
AU - Feng, Ping
AU - Patuwo, Eddy
PY - 2012/10/1
Y1 - 2012/10/1
N2 - When making sourcing decisions, many firms consider only the direct and most visible supply-chain costs, such as unit production costs and ocean-shipping costs. Often ignored are the hidden direct and indirect costs in long supply chains, and their impact on profitability. As supply chains lengthen, supply-chain disruptions undercut the ability of manufacturers and retailers to satisfy market demands. Supply-chain disruptions add costs by forcing companies to increase inventories, to juggle production and shipping schedules, to incur excessive backordering, and to airfreight or discount the prices of goods that were not in the right place at the right time. The question is, can higher incidence of supply-chain disruptions in intercontinental supply chains justify keeping the domestic suppliers? To address the question, this paper presents a hybrid continuousreview inventory model for dual intercontinental and domestic outsourcing. The conditions for domestic outsourcing only, for intercontinental outsourcing, and for dual outsourcing were established. The problem of minimising the long-run average cost of outsourcing was investigated, and mathematical optimisation was used to illustrate the model. It is shown that if the cost of service failure outweighs the cost differential between domestic and intercontinental outsourcing, keeping domestic suppliers may be a good option.
AB - When making sourcing decisions, many firms consider only the direct and most visible supply-chain costs, such as unit production costs and ocean-shipping costs. Often ignored are the hidden direct and indirect costs in long supply chains, and their impact on profitability. As supply chains lengthen, supply-chain disruptions undercut the ability of manufacturers and retailers to satisfy market demands. Supply-chain disruptions add costs by forcing companies to increase inventories, to juggle production and shipping schedules, to incur excessive backordering, and to airfreight or discount the prices of goods that were not in the right place at the right time. The question is, can higher incidence of supply-chain disruptions in intercontinental supply chains justify keeping the domestic suppliers? To address the question, this paper presents a hybrid continuousreview inventory model for dual intercontinental and domestic outsourcing. The conditions for domestic outsourcing only, for intercontinental outsourcing, and for dual outsourcing were established. The problem of minimising the long-run average cost of outsourcing was investigated, and mathematical optimisation was used to illustrate the model. It is shown that if the cost of service failure outweighs the cost differential between domestic and intercontinental outsourcing, keeping domestic suppliers may be a good option.
KW - Hybrid continuous-review inventory model
KW - Intercontinental supply chain
KW - Lead time
KW - Outsourcing
UR - http://www.scopus.com/inward/record.url?scp=84867050334&partnerID=8YFLogxK
U2 - 10.1080/00207543.2011.638941
DO - 10.1080/00207543.2011.638941
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AN - SCOPUS:84867050334
SN - 0020-7543
VL - 50
SP - 5460
EP - 5473
JO - International Journal of Production Research
JF - International Journal of Production Research
IS - 19
ER -