Manufacturer's Optimal Order Policy And Value Of Supplier Capacity Audit

In the manufacturing industry, single-sourcing has been common sourcing strategy for manufacturers because of its great advantages such as consistent quality parts with proper price, stable business relationship between buyer and supplier. Therefore manufacturers put a lot of efforts and time to find one good supplier, and once contract is made, they want to keep this contract as long as possible.However, in spite of its advantages, manufacturer sometimes faces difficulties due to increased market demand when they have to ask supplier to increase order quantity which is more than the quantity promised in the original contract. In this situation manufacturer's final production quantity is totally depending on supplier's production capacity. Therefore manufacturer will ask supplier its capacity and depending on the reported capacity, manufacturer will decide how much they will order from supplier.On the other hand supplier's capacity information is not always obtainable, so in this research we focus on the cost difference of manufacturer when it knows supplier's capacity information in advance and when it doesn't. We examine that when we know the supplier's capacity information in advance there is always cost-saving and we name it “Value of supplier's capacity information(VOI)”. Furthermore, throughout the numerical experiment, we analyse which factors have significant influence on VOI.