Optimal Dual Sourcing Decisions for Assembly Supply Chain with Different Production Scale Expansion Flexibilities
CHEN Chong-ping1, CHEN Zhi-ming2
1.School of Politics and Public Administration, South China Normal University, Guangzhou Guangdong 510006, China 2.School of Credit Management, Guangdong University of Finance, Guangzhou Guangdong 510521, China
Abstract:Production scale expansion flexibility is a vital factor in determining whether the supply chain upstream can satisfy the downstream order. This paper considers the dual sourcing problem of a supply chain comprised of one assembler and two suppliers. Based on the modified Newsvendor model incorporating yield uncertainty and production scale expansion flexibility, the profit functions of assembler and suppliers are established respectively. With the goal of profit maximization, the optimal order quantities for assembler and productions quantities for suppliers are derived by Stackelberg game, and then the sensitivity analysis is conducted on the lot-sizing decisions and profits. It is found that the order quantity is correlated negatively with the production instability, that is, the assembler tends to allocate more orders to the stabler supplier. There exists a threshold instability, which turns the correlation between production quantity and production instability from negative to positive. The production quantity and order quantity are both correlated positively with the production scale expansion flexibility, meaning that the assembler should build its supply chain in the area with high production scale expansion flexibility. When building the initial capacity, the supplier should consider the relative size between overproduction probability and production scale expansion flexibility. If the former is larger than the latter, a large-scale production line should be built, otherwise, choose a small-scale production line.
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