Order splitting in single sourcing with scheduled-release orders

Abstract

Traditional inventory models assume that a buyer places one order with a supplier in each order cycle. A large number of researchers have studied the benefits of dual sourcing such that an order quantity is split and placed simultaneously with two suppliers. We show that many of the benefits of dual sourcing are due to order splitting rather than using two suppliers. We investigate order splitting with one supplier such that the first part of the order is sent out immediately but the second part of the order is released later (scheduled-release). Through extensive computational results, we show that in many situations where dual sourcing or the use of a cheaper supplier would be cost effective, single sourcing with order splitting using scheduled-release orders is better. The paper provides a quantitative rationale to continue with one supplier. We also summarize the qualitative reasons to prefer single sourcing or multiple sourcing.

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