Comparing sourcing strategies in two-echelon supply chains

We investigate four sourcing models with respect to either cooperative or non-cooperative planning strategies and either sole or dual sourcing. A two-stage supply chain is considered. It involves a single buyer and either one or two supplier(s)/vendor(s). At the buyer, the product is consumed at a constant rate and an (r, Q) inventory control policy is used for replenishments. The delivery lead time from the vendors is stochastic. The cost function comprises five elements: inventory holding costs for buyer and vendors, backorder costs and ordering costs for the buyer, and setup costs for the vendors. The objective is to minimize total system costs incurred at the buyer and the vendors. As there is no overall dominating combined sourcing strategy, a major finding is that determining the best strategy requires a detailed analysis. However, when total system costs are taken into account, dual sourcing does not appear as beneficial as sometimes claimed in the literature on order splitting.