Newsvendor problem with multiple unreliable suppliers

Yasemin Merzifonluoglu*, Yazhe Feng

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

Abstract

This paper focuses on supplier-related decisions in a newsvendor setting. We build upon the current literature by analysing the newsvendor problem with multiple unreliable and non-identical suppliers. We also incorporate both fixed ordering costs and capacity limits for supplier selection. We develop an exact algorithm to solve the problem optimally and a heuristic algorithm to solve the problem efficiently. Through structural properties of the optimal solution and a numerical study, we provide useful managerial implications regarding optimal sourcing strategies in complex supply chains. Previous literature concludes that with multiple unreliable (independent) suppliers, cost is the order qualifier and reliability is the order winner. We found that when fixed ordering costs and supply capacities exist, this insight no longer holds. We also examine the sensitivity of the sourcing decisions to supplier capacity levels, demand uncertainty, salvage value and shortage cost. Our results show that high levels of demand uncertainty lead firms to turn to a single-sourcing strategy whereas high salvage values and high shortage cost suggest multi-sourcing strategy.

Original languageEnglish
Pages (from-to)221-242
JournalInternational Journal of Production Research
Volume52
Issue number1
DOIs
Publication statusPublished - 2 Jan 2014
Externally publishedYes

Keywords

  • inventory
  • branch and bound
  • non-linear programming
  • supply chain management

Cite this

@article{4a4ffd7bb22747cbb5d1bc9a9e6f1671,
title = "Newsvendor problem with multiple unreliable suppliers",
abstract = "This paper focuses on supplier-related decisions in a newsvendor setting. We build upon the current literature by analysing the newsvendor problem with multiple unreliable and non-identical suppliers. We also incorporate both fixed ordering costs and capacity limits for supplier selection. We develop an exact algorithm to solve the problem optimally and a heuristic algorithm to solve the problem efficiently. Through structural properties of the optimal solution and a numerical study, we provide useful managerial implications regarding optimal sourcing strategies in complex supply chains. Previous literature concludes that with multiple unreliable (independent) suppliers, cost is the order qualifier and reliability is the order winner. We found that when fixed ordering costs and supply capacities exist, this insight no longer holds. We also examine the sensitivity of the sourcing decisions to supplier capacity levels, demand uncertainty, salvage value and shortage cost. Our results show that high levels of demand uncertainty lead firms to turn to a single-sourcing strategy whereas high salvage values and high shortage cost suggest multi-sourcing strategy.",
keywords = "inventory, branch and bound, non-linear programming, supply chain management",
author = "Yasemin Merzifonluoglu and Yazhe Feng",
year = "2014",
month = "1",
day = "2",
doi = "10.1080/00207543.2013.835497",
language = "English",
volume = "52",
pages = "221--242",
journal = "International Journal of Production Research",
issn = "0020-7543",
publisher = "TAYLOR & FRANCIS LTD",
number = "1",

}

Newsvendor problem with multiple unreliable suppliers. / Merzifonluoglu, Yasemin; Feng, Yazhe.

In: International Journal of Production Research, Vol. 52, No. 1, 02.01.2014, p. 221-242.

Research output: Contribution to journalArticleScientificpeer-review

TY - JOUR

T1 - Newsvendor problem with multiple unreliable suppliers

AU - Merzifonluoglu, Yasemin

AU - Feng, Yazhe

PY - 2014/1/2

Y1 - 2014/1/2

N2 - This paper focuses on supplier-related decisions in a newsvendor setting. We build upon the current literature by analysing the newsvendor problem with multiple unreliable and non-identical suppliers. We also incorporate both fixed ordering costs and capacity limits for supplier selection. We develop an exact algorithm to solve the problem optimally and a heuristic algorithm to solve the problem efficiently. Through structural properties of the optimal solution and a numerical study, we provide useful managerial implications regarding optimal sourcing strategies in complex supply chains. Previous literature concludes that with multiple unreliable (independent) suppliers, cost is the order qualifier and reliability is the order winner. We found that when fixed ordering costs and supply capacities exist, this insight no longer holds. We also examine the sensitivity of the sourcing decisions to supplier capacity levels, demand uncertainty, salvage value and shortage cost. Our results show that high levels of demand uncertainty lead firms to turn to a single-sourcing strategy whereas high salvage values and high shortage cost suggest multi-sourcing strategy.

AB - This paper focuses on supplier-related decisions in a newsvendor setting. We build upon the current literature by analysing the newsvendor problem with multiple unreliable and non-identical suppliers. We also incorporate both fixed ordering costs and capacity limits for supplier selection. We develop an exact algorithm to solve the problem optimally and a heuristic algorithm to solve the problem efficiently. Through structural properties of the optimal solution and a numerical study, we provide useful managerial implications regarding optimal sourcing strategies in complex supply chains. Previous literature concludes that with multiple unreliable (independent) suppliers, cost is the order qualifier and reliability is the order winner. We found that when fixed ordering costs and supply capacities exist, this insight no longer holds. We also examine the sensitivity of the sourcing decisions to supplier capacity levels, demand uncertainty, salvage value and shortage cost. Our results show that high levels of demand uncertainty lead firms to turn to a single-sourcing strategy whereas high salvage values and high shortage cost suggest multi-sourcing strategy.

KW - inventory

KW - branch and bound

KW - non-linear programming

KW - supply chain management

U2 - 10.1080/00207543.2013.835497

DO - 10.1080/00207543.2013.835497

M3 - Article

VL - 52

SP - 221

EP - 242

JO - International Journal of Production Research

JF - International Journal of Production Research

SN - 0020-7543

IS - 1

ER -