Structural properties of the optimal policy for dual-sourcing systems with general lead times

Abstract

This article considers a periodic-review inventory problem with two suppliers. The regular supplier has a longer lead time than the expedited supplier but has a lower unit cost. The structural properties of the optimal orders are characterized using the notion of L^♮-convexity. Interestingly, the optimal regular order is more sensitive to the late-to-arrive outstanding orders, but the optimal expedited order is more sensitive to the soon-to-arrive outstanding orders. A heuristic policy is designed that provides an average cost saving of 1.02% over the best heuristic policy in the literature.