Thomas A. Weber
ABSTRACT
In this paper, we introduce the notion of an "opportunity good" as a discount production input that may prove of satisfactory quality upon inspection and otherwise can be returned to the supplier. While in a quality-sensitive setting it is never optimal to source only opportunity goods without ever running out of stock, it is often best to complement high-quality premium inputs by a significant fraction of goods that are of low but sufficiently high-variance quality, provided they can be returned at a reasonable fee. Such dual sourcing of components is currently being used in certain industries to produce sensitive equipment. In an EOQ framework, we examine the optimal production input split between opportunity goods and high-quality inputs.
- Keynes, J.M. 1936. The General Theory of Employment, Interest, and Money. Harcourt Brace, New York, NY.Google Scholar
- Arrow, K.J., Karlin, S. and Scarf, H. 1958. Studies in the Mathematical Theory of Inventory and Production. Stanford University Press, Stanford, CA.Google Scholar
- Harris, F.W. 1913. How many parts to make at once. Factory, The Magazine of Management 10, 2 (Feb. 1913), 135-136, 152. [Reprinted in: Oper. Res. 38, 6 (Nov.-Dec. 1990), 947--950. DOI=https://doi.org/10.1287/opre.38.6.947.]Google Scholar
- Andriolo, A., Battini, D., Grubbström, R.W., Persona, A. and Sgarbossa, F. 2014. A century of evolution from Harris's basic lot size model: Survey and research agenda. Int. J. Prod. Econ. 155 (Sep. 2014), 16--38. DOI=https://doi.org/10.1016/j.ijpe.2014.01.013.Google ScholarCross Ref
- Erlenkotter, D. 2014. Ford Whitman Harris's economic lot size model. Int. J. Prod. Econ. 155 (Sep. 2014), 12--15. DOI=https://doi.org/10.1016/j.ijpe.2013.12.008.Google ScholarCross Ref
- Salameh, M.K. and Jaber, M.Y. 2000. Economic production quantity model for items with imperfect quality. Int. J. Prod. Econ. 64, 1-3 (Mar. 2000), 59--64. DOI=https://doi.org/10.1016/S0925-5273(99)00044-4.Google ScholarCross Ref
- Maddah, B. and Jaber, M.Y. 2008. Economic order quantity for items with imperfect quality: Revisited. Int. J. Prod. Econ. 112, 2 (Apr. 2008), 808--815. DOI=https://doi.org/10.1016/j.ijpe.2007.07.003.Google Scholar
- Khan, M., Jaber, M.Y., Guiffrida, A.L. and Zolfaghari, S. 2011. A review of extensions of a modified EOQ model for imperfect quality items. Int. J. Prod. Econ. 132, 1 (Jul. 2011), 1--12. DOI=https://doi.org/10.1016/j.ijpe.2011.03.009.Google ScholarCross Ref
- Papachristos, S. and Konstantaras, I. 2006. Economic ordering quantity models for items with imperfect quality. Int. J. Prod. Econ. 100, 1 (Mar. 2006), 148--154. DOI=https://doi.org/10.1016/j.ijpe.2004.11.004.Google ScholarCross Ref
- Chang, H.-C. and Ho, C.-H. 2010. Exact closed-form solutions for "optimal inventory model for items with imperfect quality and shortage backordering." Omega 38, 3-4 (Jun.-Aug. 2010), 233--237. DOI=https://doi.org/10.1016/j.omega.2009.09.006.Google ScholarCross Ref
- Eroglu, A. and Ozdemir, G. 2007. An economic order quantity model with defective items and shortages. Int. J. Prod. Econ. 106, 2 (Apr. 2007), 544--549. DOI=https://doi.org/10.1016/j.ijpe.2006.06.015.Google ScholarCross Ref
- Skouri, K., Konstantaras, I., Lagodimos, A.G. and Papachristos, S. 2014. An EOQ model with backorders and rejection of defective supply batches. Int. J. Prod. Econ. 155 (Sep. 2014), 148--154. DOI=https://doi.org/10.1016/j.ijpe.2013.11.017.Google ScholarCross Ref
- Taleizadeh, A.A., Khanbaglo, M.P.S. and Cárdenas-Barrón, L.E. 2016. An EOQ inventory model with partial backordering and reparation of imperfect products. Int. J. Prod. Econ. 182 (Dec. 2016), 418--434. DOI=https://doi.org/10.1016/j.ijpe.2016.09.013.Google ScholarCross Ref
- Wee, H.M., Yu, J. and Chen, M.C. 2007. Optimal inventory model for items with imperfect quality and shortage backordering. Omega 35, 1 (Feb. 2007), 7--11. DOI=https://doi.org/10.1016/j.omega.2005.01.019.Google ScholarCross Ref
- Bertsekas, D.P. 1995. Nonlinear Programming. Athena Scientific, Belmont, MA.Google Scholar
- Chao, M.T. and Strawderman, W.E. 1972. Negative moments of positive random variables. J. Am. Stat. Assoc. 67, 338 (Jun. 1972), 429--431. DOI=https://doi.org/10.1080/01621459.1972.10482404.Google ScholarCross Ref
Index Terms
- Planning Supply with 'Opportunity Goods': Complementing Premium Parts with Select Discount Components
Recommendations
Comparing sourcing strategies in two-echelon supply chains
We investigate four sourcing models with respect to either cooperative or non-cooperative planning strategies and either sole or dual sourcing. A two-stage supply chain is considered. It involves a single buyer and either one or two supplier(s)/vendor(s)...
Branding Conspicuous Goods: An Analysis of the Effects of Social Influence and Competition
Branding decisions are critical for the success of new products. Prior research on branding and brand extension has primarily focused on how branding influences consumers' perceptions of product quality. However, consumers of conspicuous goods care not ...
Dynamic Pricing and Inventory Management Under Fluctuating Procurement Costs
We consider a periodic review joint pricing and inventory control model in which a firm faces both stochastic demand and fluctuating procurement costs. To address procurement cost fluctuation, the firm adopts a dual-sourcing strategy, under which it ...
Comments