A hybrid optimisation approach to configure a supply chain for new product diffusion: a case study of multiple-sourcing strategy

Abstract

Configuring a supply chain for a new product is a challenging task due to the lack of historical demand data and the dynamic/uncertain nature of the new product diffusion process. An integrated supply chain configuration (SCC) and new product diffusion (NPD) model is developed to explicitly account for the impact of demand dynamics during a new product's diffusion on an optimal supply chain configuration. Our hybrid NPD-SCC model allows a manufacturer to source from multiple suppliers, vendors or modes for its supply chain entities. Such a multiple-sourcing approach not only helps the manufacturer to diversify its pool of suppliers and maintain bargaining power, but also builds redundancy into the supply chain to hedge against potential demand surge and supply disruption during the new product life cycle. Through a case study and a comprehensive computational study, we find that although the single-sourcing solution is able to achieve lower unit-manufacturing cost (UMC), the multiple-sourcing approach is superior to single-sourcing on the overall supply chain performance in the environment with random supply disruptions. By building-in redundancy as multiple suppliers and modes, the resultant supply chain has less chance of being disrupted and achieves higher overall profit on average. We also draw several other managerial insights closing the gap between some supply chain operations and marketing strategies.