A continuous-review model for dual intercontinental and domestic outsourcing

Henry C. Co, Israel David, Ping Feng, Eddy Patuwo

Research output: Contribution to journalArticlepeer-review

3 Scopus citations

Abstract

When making sourcing decisions, many firms consider only the direct and most visible supply-chain costs, such as unit production costs and ocean-shipping costs. Often ignored are the hidden direct and indirect costs in long supply chains, and their impact on profitability. As supply chains lengthen, supply-chain disruptions undercut the ability of manufacturers and retailers to satisfy market demands. Supply-chain disruptions add costs by forcing companies to increase inventories, to juggle production and shipping schedules, to incur excessive backordering, and to airfreight or discount the prices of goods that were not in the right place at the right time. The question is, can higher incidence of supply-chain disruptions in intercontinental supply chains justify keeping the domestic suppliers? To address the question, this paper presents a hybrid continuousreview inventory model for dual intercontinental and domestic outsourcing. The conditions for domestic outsourcing only, for intercontinental outsourcing, and for dual outsourcing were established. The problem of minimising the long-run average cost of outsourcing was investigated, and mathematical optimisation was used to illustrate the model. It is shown that if the cost of service failure outweighs the cost differential between domestic and intercontinental outsourcing, keeping domestic suppliers may be a good option.

Original languageEnglish
Pages (from-to)5460-5473
Number of pages14
JournalInternational Journal of Production Research
Volume50
Issue number19
DOIs
StatePublished - 1 Oct 2012

Keywords

  • Hybrid continuous-review inventory model
  • Intercontinental supply chain
  • Lead time
  • Outsourcing

ASJC Scopus subject areas

  • Strategy and Management
  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering

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