Title: Cost minimisation for downstream outsourcing supply chain under demand uncertainty

Authors: Yingjun Wang, Hongnian Yu

Addresses: Sydney Institute of Language and Commerce (SILC), Shanghai University, Jiading, Shanghai, 201800, PR China. ' Faculty of Computing, Engineering and Technology, Staffordshire University, P.O. Box 334, Beaconside, Stafford ST16 9DG, UK

Abstract: In this paper, we consider a supply chain with one core manufacturer in Europe, one non-core manufacturer and several local retailers of a developing country in Asia to meet the local demand. In the circumstance of the Downstream Outsourcing Supply Chain (DOSC), there are uncertainties in the lead-time demand, and the delivery time is relatively long for European companies, therefore it is hard to match the unexpected and emergent demand in the market of developing countries. This paper first develops a cost model for a multistage DOSC under the demand and lead-time uncertainties, then proposes a scheme to minimise an average cost function, constrained by a given (target) service level. A new formula to measure the demand uncertainty is also proposed. Based on the proposed formula, the simulation method is used to analyse the influences of uncertainty on the optimal order quantity and minimum costs.

Keywords: downstream outsourcing supply chain; multistage DOSC; cost minimisation; demand uncertainty; lead time demand; replenishment policy; supply chain management; SCM; agile management; agile systems; simulation.

DOI: 10.1504/IJASM.2006.011633

International Journal of Agile Systems and Management, 2006 Vol.1 No.4, pp.422 - 435

Available online: 06 Dec 2006 *

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