Abstract
This paper demonstrates how firms can deal with demand uncertainty through inventory planning and demand switching, which take advantage of the risk-pooling effect and contribute to supply-chain sustainability. Considering two types of products and two outsourcing strategies (competitive bidding, and consignment stock under the (Q, R) inventory policy with variable lead times), the study helps determine the appropriate outsourcing strategy when a firm practices demand switching. Under certain conditions, the study further identifies the proper demand-switching direction and optimum switching-rate to achieve the minimum total purchase and inventory costs in association with outsourcing. Prior research generally implies that demand switching increases costs or profit benefits. This implication, however, does not hold true in the present context. The study presents numerical examples to illustrate the derived models. The findings enrich the extant literature by incorporating demand switching into the outsourcing practices, which is beneficial to both practitioners and scholars.
Highlights
Introduction and Literature ReviewUncertainty represents one of the most critical issues facing firms around the world
In supply-chain management, supply-chain sustainability is related to the environmental friendship, such as reducing goods leftovers, and economic sustainability, such as increasing return on investment [6]
Choi and Chiu [7] propose a measurement of supply chain sustainability
Summary
Uncertainty represents one of the most critical issues facing firms around the world. These frequently endorsed approaches largely take advantage of the risk-pooling effect and supply-chain sustainability to ease the impact of demand uncertainty. Reviews of these studies suggests research opportunities to integrate these approaches. This particular opportunity, has attracted insufficient attention and warrants research In light of this deficiency in research, the present study aims to explore if firms, in an effort to cope with demand uncertainty, can improve their outsourcing practices through demand switching, benefiting from the risk-pooling effect and supply-chain sustainability. Under the (Q, R) inventory policy with variable lead time, the firm may implement competitive bidding or consignment stock as its outsourcing strategy.
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