Abstract
This paper provides buying firms with a useful sourcing policy decision tool to help them determine an optimum set of suppliers when a number of sourcing alternatives exist. We propose a probabilistic cost model in which suppliers’ quality performance is measured by inconformity of the end product measurements and delivery performance is estimated based on the suppliers’ expected delivery earliness and tardiness. The model is then empirically tested, utilizing the parameters obtained from one US mechanical component manufacturing company. The results from the case analysis indicate that single sourcing could be a cost effective policy but is not a panacea when the buying firm pursues product quality and delivery excellence. A prerequisite condition for the success of single sourcing practices is a low incoming quality variation within a group of single-source suppliers.
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