Title: Component sourcing under disruption risk

Authors: Ping Su; Xiangling Hu; Jaideep Motwani

Addresses: Department of Management and Entrepreneurship, Frank G. Zarb School of Business, Hofstra University, Hempstead, NY 11549, USA ' Management Department, Seidman College of Business, Grand Valley State University, Grand Rapids, MI 49504, USA ' Management Department, Seidman College of Business, Grand Valley State University, Grand Rapids, MI 49504, USA

Abstract: This paper considers the components sourcing problem for a manufacturer that makes a product consisting of two key components under supply disruption risks. Most of operations management papers focus on the sourcing decision of one component. However, many products are made of multiple components and the shortage of one component affects the production of the final product. In our model, the manufacturer has the option to source each component from one of the two suppliers at different costs. Both suppliers face supply disruption risks. One of the components is also available on the spot market at a higher cost. We provide the complete characterisation of conditions under which one sourcing strategy outperforms another strategy. We summarise the conditions for each of the four sourcing strategies to be optimal. We also study the impact of the key parameters such as selling price, sourcing costs, spot market price, disruption risks and supplier setup cost on the optimal sourcing strategy.

Keywords: multiple-component sourcing; supply disruption risks; dual sourcing; spot market.

DOI: 10.1504/IJMOR.2023.129434

International Journal of Mathematics in Operational Research, 2023 Vol.24 No.2, pp.300 - 318

Received: 25 Jan 2022
Accepted: 26 Jan 2022
Published online: 09 Mar 2023 *

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