Title: Composite sourcing policy considering raw-material consumption

Authors: Taebok Kim; Suresh K. Goyal

Addresses: Graduate School of Logistics, University of Incheon, Yeonsu-Gu, Incheon 406-840, Korea ' John Molson School of Business, Concordia University, 1455, De Maisonneuve Blvd. West, Montreal, H3G 1M8, Canada

Abstract: In this paper, we study a composite sourcing policy considering raw-material consumption so as to maximise the expected total profit while considering mixed strategy for sourcing policy with the lot-sizing issue for multiple products. It is proved that the optimal mixed strategy considering the consumption of raw materials has a property for strong local maximum. Using this property, we propose the economical sourcing policy while considering the relevant cost for raw material management. We analyse and illustrate the behaviours of economical sourcing policy by numerical examples. For future research, it is necessary to take into account both quality issue of supplied items with different production modes and scheduling issue between intermediate inputs and finished goods along supply chain stages.

Keywords: make-or-buy decisions; out-sourcing; in-sourcing; in-house making; economic lots; scheduling problems; raw materials consumption; composite policies; sourcing policies; profit maximisation; expected profits; total profits; mixed strategies; lot-sizing; multiple products; strong maximum; local maximum; economical sourcing; relevant costs; raw material management; quality issues; supplied items; production modes; intermediate inputs; finished goods; SCM; supply chain management; logistics systems; logistics management.

DOI: 10.1504/IJLSM.2012.046705

International Journal of Logistics Systems and Management, 2012 Vol.11 No.4, pp.535 - 549

Published online: 28 Nov 2014 *

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