Multi-product dual sourcing problem with limited capacities

This study considers a dual sourcing problem with multiple products in which each product can be procured from two capacitated suppliers, one with low production costs but high unreliability, and the other with high production costs but high reliability. The unreliable supplier cannot deliver any products if there is even one disruption. The objective of the retailer is to determine what order quantities for all of the products from the two suppliers, subject to the supplier capacity constraints, will maximize the expected profit. We use an extended newsvendor model to characterize the problem. A two-tier bi-section search method is developed for seeking the optimal solution to the problem. Numerical results are used to assess the effectiveness of the proposed method and the value of dual sourcing.