Optimal single and multiple source purchasing arrangements
Choi, Jeong-Wook
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Permalink
https://hdl.handle.net/2142/19436
Description
Title
Optimal single and multiple source purchasing arrangements
Author(s)
Choi, Jeong-Wook
Issue Date
1992
Doctoral Committee Chair(s)
Monahan, George E.
Department of Study
Business Administration
Discipline
Business Administration
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
Business Administration, Management
Language
eng
Abstract
This research is concerned with the development of an analytical framework for multiple and single source purchasing arrangements.
When uncertainties of supply exist, caused by lead time variability, natural disasters, or other reasons, a company may use multiple suppliers to reduce these uncertainties. Using multiple sources may reduce disruptions of supply. However, we need to ascertain how best to use multiple sources. To establish the optimal way in which to split orders among multiple vendors, we will pursue two models. The first deals with optimal order splitting policies when a continuous (R,Q) inventory system is used. We develop analytical models of order splitting policies and analyze the optimal performance of the one and two vendor models. The second model considers the optimal ordering policies when a periodic inventory control is used. We analyze the optimal ordering policies in different cases depending on whether there is a single demand or there are successive demands on the planning horizon.
If the uncertainties of supply are considered not as given, but as manageable, a company may invest to reduce these uncertainties in order to diminish the company's operating costs. We examine the economic tradeoffs between investments directed toward the reduction of uncertainties in single source purchasing arrangements. Two models are presented in this regard. The first considers the ability of a purchaser to reduce the variance of the lead time of its supplier. The second model adds the ability of the purchaser to not only influence the variance of its supplier's lead time, but also to influence the proportion of defective units produced by the supplier. We develop explicit solutions for jointly choosing optimal variances for both lead time and proportion of defective units within a reorder point model.
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