Cost minimisation for downstream outsourcing supply chain under demand uncertainty

Abstract

In this paper, we consider a supply chain with one core manufacturer in Europe, one non-core manufacturer and several local retailers of a developing country in Asia to meet the local demand. In the circumstance of the Downstream Outsourcing Supply Chain (DOSC), there are uncertainties in the lead-time demand, and the delivery time is relatively long for European companies, therefore it is hard to match the unexpected and emergent demand in the market of developing countries. This paper first develops a cost model for a multistage DOSC under the demand and lead-time uncertainties, then proposes a scheme to minimise an average cost function, constrained by a given (target) service level. A new formula to measure the demand uncertainty is also proposed. Based on the proposed formula, the simulation method is used to analyse the influences of uncertainty on the optimal order quantity and minimum costs.