Single sourcing versus dual sourcing under conditions of learning

This paper considers a buyer who has to decide whether to select a single or two sources of supply for a homogeneous product. The production processes of the suppliers are subject to learning effects, which reduce the production costs and increase the production capacities of the suppliers. This, in turn, enables the suppliers to reduce the sales price, which results in lower acquisition costs at the buyer. As the supplier selection decision influences the individual production quantity of a supplier, the learning effect has to be considered when deciding how many and which suppliers to select. Since the effect of learning on the supplier selection problem has not been investigated in the literature, this paper addresses this limitation and derives models for continuous learning and when learning plateaus. Numerical results indicate that the supplier selection decision can comprehensively influence the learning process for the suppliers and therewith the total costs of the system under study. The results also show that it is not necessarily optimal solely to select the supplier with the highest learning rate. (C) 2011 Elsevier Ltd. All rights reserved.