Reducing lead time risk through multiple sourcing: the case of stochastic demand and variable lead time

Abstract

This paper studies a buyer sourcing a product from multiple suppliers under stochastic demand. The buyer uses a (Q, s) continuous review, reorder point, order quantity inventory control system to determine the size and timing of orders. Lead time is assumed to be deterministic and to vary linearly with the lot size, wherefore lead time and the associated stockout risk may be influenced by varying the lot size and the number of contracted suppliers. This paper presents mathematical models for a multiple supplier single buyer integrated inventory problem with stochastic demand and variable lead time and studies the impact of the delivery structure on the risk of incurring a stockout during lead time.