We analyze a continuous review lost sales inventory system with two types of
orders—regular and emergency. The regular order has a stochastic lead time
and is placed with the cheapest acceptable supplier. The emergency order has
a deterministic lead time is placed with a local supplier who has a higher
price. The emergency order is not always filled since the supplier may not
have the ability to provide the order on an emergency basis at all times. This
emergency order has a higher cost per item and has a known probability of
being filled. The total costs for this system are compared to a system without
emergency placement of orders. This paper provides managers with a tool to
assess when dual sourcing is cost optimal by comparing the single sourcing
and dual sourcing models.
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