Dual Sourcing and Smoothing Under Nonstationary Demand Time Series: Reshoring with SpeedFactories

Robert N. Boute, Stephen M. Disney, Joren Gijsbrechts, Jan A. Van Miegheme

Research output: Indexed journal article Articlepeer-review

27 Citations (Scopus)

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 reshoring 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 with complete off-shoring. Our analysis uses 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 nonstationary demand series, which are prevalent in practice yet challenging to analyze, on the economic benefit of reshoring. Methodologically, we adopt a linear policy and normally distributed demand and use Z-transforms to present exact analyses.
Original languageEnglish
Pages (from-to)1039-1057
Number of pages19
JournalManagement Science
Volume68
Issue number2
Early online dateApr 2021
DOIs
Publication statusPublished - Feb 2022
Externally publishedYes

Keywords

  • Auto-regressive demand
  • Dual sourcing
  • Global outsourcing
  • Integrated moving average demand
  • Inventory management
  • Order smoothing
  • Order-up-to policy
  • Z-transform

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