Abstract
This paper addresses a procurement issue facing a polystyrene packaging manufacturer considering its optimal purchasing strategies between two suppliers—one providing virgin material, the other offering recycled material. We model a single-period scenario where each supplier sells product with a known yield distribution at market pricing. The manufacturer must choose whether to sole-source or dual-source, as well as determine how much material to purchase from each supplier to meet deterministic demand. Our results indicate that there is a range of prices from the recycled material supplier where dual-sourcing will lead to higher manufacturer profits compared to sole-sourcing. We show, based on the procurement strategy, the optimal quantities to purchase to maximize manufacturer’s expected profit.
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