Volume Flexibility at Responsive Suppliers in Reshoring Decisions: Analysis of a Dual Sourcing Inventory Model
Gijsbrechts, Joren Boute, Robert N Disney, Stephen M Van Mieghem, Jan A
Gijsbrechts, Joren
Boute, Robert N
Disney, Stephen M
Van Mieghem, Jan A
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Publication Year
2025-05
Journal
Production and Operations Management
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Publication Volume
34
Publication Issue
5
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Abstract
We investigate how volume flexibility, defined by a sourcing cost premium beyond a base capacity, at a local responsive supplier impacts the decision to reshore supply. The buyer also has access to a remote supplier that is cheaper with no restrictions on volume flexibility. We show that with unit lead time difference between both suppliers, the optimal dual sourcing policy is a modified dual base‐stock policy with three base‐stock levels <math display="inline" overflow="scroll"> <msubsup> <mi>S</mi> <mn>1</mn> <mi>f</mi> </msubsup> </math> , <math display="inline" overflow="scroll"> <msubsup> <mi>S</mi> <mn>2</mn> <mi>f</mi> </msubsup> </math> , and <math display="inline" overflow="scroll"> <msup> <mi>S</mi> <mi>s</mi> </msup> </math> . The replenishment orders are generated by first placing a base order from the fast supplier of at most <math display="inline" overflow="scroll"> <mi>k</mi> </math> units to raise the inventory position to <math display="inline" overflow="scroll"> <msubsup> <mi>S</mi> <mn>1</mn> <mi>f</mi> </msubsup> </math> , if that is possible. After this base order, if the adjusted inventory position is still below <math display="inline" overflow="scroll"> <msubsup> <mi>S</mi> <mn>2</mn> <mi>f</mi> </msubsup> </math> , additional units are ordered from the fast supplier at an overtime premium to reach <math display="inline" overflow="scroll"> <msubsup> <mi>S</mi> <mn>2</mn> <mi>f</mi> </msubsup> </math> . Finally, if the adjusted inventory position is below <math display="inline" overflow="scroll"> <msup> <mi>S</mi> <mi>s</mi> </msup> </math> , an order from the slow supplier is placed to bring the final inventory position to <math display="inline" overflow="scroll"> <msup> <mi>S</mi> <mi>s</mi> </msup> </math> . Surprisingly, in contrast to single sourcing with limited volume flexibility, a more complex dual sourcing model often results in a “simpler” policy that replaces demand in each period. The latter allows analytical insights into the sourcing split between the responsive and the remote supplier. Our analysis shows how increased volume flexibility at the responsive supplier promotes the decision to reshore operations and effectively serves as a cost benefit. It also shows how investing in base capacity or additional volume flexibility act as strategic substitutes.
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3509 Transportation, Logistics and Supply Chains, 49 Mathematical Sciences, 35 Commerce, Management, Tourism and Services