Dual sourcing

We study a dual sourcing inventory control problem under periodic review. Both demand and supply are uncertain. The suppliers differ in lead times and costs. The cheaper supplier has a larger lead time and has with binomially distributed yield. Two heuristics are introduced; both are a combination of an order-up-to policy for the expedited supplier and ordering based on current demand for the regular supplier. The two heuristics differ in that one incorporates virtual inventory levels and the other only current inventory levels. The heuristic based on virtual inventory levels performs best. Using dual sourcing is preferred over using only the expedited supplier given the uncertainty in supply is not too large. We also compare the performance of our heuristics with that of a dual-index order-up-to policy found in Ju (2012). Our heuristics do not outperform this DIP. There is also a comparison made with a single sourcing heuristic; our dual sourcing heuristics do outperform this single sourcing heuristic.