Managing Supply-side Disruption Risks through Dual Sourcing

Abstract

The selection of a sourcing strategy plays a vital role in managing supply disruptions in global supply chains. The choice regarding the number of suppliers is one of the most important decisions in mitigating supply-side risks. Despite the benefits cited in the literature for single sourcing there is enough evidence that provides justification in using dualsourcing as a risk mitigating policy. In this paper we analyze single versus dual-sourcing strategies of a buying organization in a multi-period setting where each supplier is exposed to disruption risks. We incorporate supplier rating strategies based on the performance of the suppliers and use them in the sourcing decisions. In this paper, we develop a stochastic dynamic programming model to formulate the dual sourcing problem.