Dual-channel component replenishment problem in an assemble-to-order system

Abstract

This article considers a component inventory problem in an assemble-to-order system where the assemble-to-order manufacturer faces a single-period stochastic demand for a single product created from multiple components. After the demand is realized, required components that are not available from inventory can be obtained using two sourcing channels that have different prices and lead times. The considered problem is formulated and solved analytically and the structural properties of its optimal solutions are explored. Computational experiments are performed to demonstrate the efficiency of the solution methods and comparisons are made between the performance of assemble-to-order systems with single- and dual-channel procurement approaches. It is also demonstrated that the proposed approach can be extended to the problem that considers multiple sourcing channels for components.