An approximate policy for a dual-sourcing inventory model with positive lead times and binomial yield

This paper studies the inventory system of a retailer who orders his products from two supply sources, a local one that is responsive and reliable, but expensive, and a global one that is low-cost but less reliable. The deliveries from the global source only partially satisfy the quality requirements.Wemodel this situationwith a dual-sourcing inventory model with positive lead times and random yield. We propose a dual-index orderup-to policy (DOP) based on approximating the inventorymodel with an unreliable supplier by a sequence of dual-sourcing models with reliable suppliers and suitably modified demand distributions. Numerical results show that the performance of this heuristic is close to that of the optimal DOP. Moreover, we extend the heuristic to models with advance yield information and study its impact on the total inventory costs. © 2015 Elsevier B.V. All rights reserved.