Comparison of single sourcing (with lot streaming) and dual-sourcing

Abstract

Dual-sourcing is a strategy of ordering the material required to process a lot (order) from two suppliers, instead of a single supplier. This strategy has been well-studied in the literature and has been shown to reduce lead time. However, the additional ordering cost incurred for dual-sourcing makes this strategy unattractive. In this paper, we compare it to an alternative strategy of sourcing the required material from a single supplier, but by permitting its delivery in two partial shipments (referred to here as single-sourcing (with lot streaming)). We consider the case when the supplier lead time is stochastic and its distribution depends on the size of the lot processed. We show that single-sourcing (with lot streaming): (1) is less prone to stockouts than dual-sourcing, (2) incurs lower expected lead time for a given stockout risk when the time between orders in dual-sourcing is large enough, and (3) results in lower inventory levels given the same lead time performance and allowable stockout risk when the supplier’s processing times are significantly smaller than those of the manufacturer. The risk of delay in the arrival of the first sublot is smaller for dual-sourcing, however, this advantage decreases when time between orders is increased.