Capturing the risk-pooling effect through inventory planning and demand switching

Hsun Chuan Cho, Ying Jiun Hsieh, Lan-Ying Huang

Research output: Contribution to journalArticle

Abstract

This paper demonstrates how firms can deal with demand uncertainty through inventory planning and demand switching, which take advantage of the risk-pooling effect and contribute to supply-chain sustainability. Considering two types of products and two outsourcing strategies (competitive bidding, and consignment stock under the (Q, R) inventory policy with variable lead times), the study helps determine the appropriate outsourcing strategy when a firm practices demand switching. Under certain conditions, the study further identifies the proper demandswitching direction and optimum switching-rate to achieve the minimum total purchase and inventory costs in association with outsourcing. Prior research generally implies that demand switching increases costs or profit benefits. This implication, however, does not hold true in the present context. The study presents numerical examples to illustrate the derived models. The findings enrich the extant literature by incorporating demand switching into the outsourcing practices, which is beneficial to both practitioners and scholars.

Original languageEnglish
Article number4104
JournalSustainability (Switzerland)
Volume10
Issue number11
DOIs
Publication statusPublished - 2018 Nov 8

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outsourcing
Outsourcing
Planning
planning
demand
practice firm
costs
Supply chains
purchase
Costs
Sustainable development
Profitability
profit
sustainability
effect
uncertainty
supply
firm
cost

All Science Journal Classification (ASJC) codes

  • Geography, Planning and Development
  • Renewable Energy, Sustainability and the Environment
  • Management, Monitoring, Policy and Law

Cite this

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Capturing the risk-pooling effect through inventory planning and demand switching. / Cho, Hsun Chuan; Hsieh, Ying Jiun; Huang, Lan-Ying.

In: Sustainability (Switzerland), Vol. 10, No. 11, 4104, 08.11.2018.

Research output: Contribution to journalArticle

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