Abstract Product substitution can mitigate supply chain disruptions. However, it may not be very effective without multiple sourcing. In this paper, we consider a supply chain with two downward substitutable products. The products can be ordered from an unreliable supplier or a reliable but more expensive supplier. It is found that in an optimal sourcing policy the higher-grade product should be preferred over the lower-grade product. A sufficient condition is given for an optimal policy where only the higher-grade product is dual-sourced. The effect of substitution is contrasted with the non-substitution case. Numerical study shows the impact of demand variability and correlation on the effect of product substitution and the corresponding optimal sourcing policy.


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    Title :

    Product substitution and dual sourcing under random supply failures


    Contributors:

    Published in:

    Publication date :

    2010-01-01


    Size :

    15 pages




    Type of media :

    Article (Journal)


    Type of material :

    Electronic Resource


    Language :

    English





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