Dual Sourcing and Smoothing under Non-Stationary Demand Time Series: Re-shoring with SpeedFactories
Boute, RN; Disney, SM; Gijsbrechts, J; et al.Van Mieghem, JA
Date: 12 April 2021
Article
Journal
Management Science
Publisher
INFORMS
Publisher DOI
Abstract
We investigate near-shoring a small part of the global production to local SpeedFactories that serve only
the variable demand. The short lead time of the responsive SpeedFactory reduces the risk of making large
volumes in advance, yet it does not involve a complete re-shoring of demand. Using a break-even analysis
we investigate the ...
We investigate near-shoring a small part of the global production to local SpeedFactories that serve only
the variable demand. The short lead time of the responsive SpeedFactory reduces the risk of making large
volumes in advance, yet it does not involve a complete re-shoring of demand. Using a break-even analysis
we investigate the lead time, demand, and cost characteristics that make dual sourcing with a SpeedFactory
desirable compared to complete off-shoring. Our analysis employs a linear generalization of the celebrated
order-up-to inventory policy to settings where capacity costs exist. The policy allows for order smoothing to
reduce capacity costs and performs well relative to the (unknown) optimal policy. We highlight the significant
impact of auto-correlated and non-stationary demand series, which are prevalent in practice yet challenging
to analyze, on the economic benefit of re-shoring. Methodologically, we adopt a linear policy and normally
distributed demand and use Z−transforms to present exact analyses.
Management
Faculty of Environment, Science and Economy
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