Retailers’ optimal ordering policies for a dual-sourcing procurement

Abstract

Purpose

Optimal ordering decision for a retailer in a dual-sourcing procurement is an important research area. The main purpose of this paper is to explore a loss-averse retailer’s ordering decision in a dual-sourcing problem.

Design/methodology/approach

For a loss-averse retailer, the study obtains the optimal ordering decision to maximize expected utility. Based on sensitivity analysis, the properties of the optimal ordering decision are well discussed.

Findings

Under the optimal ordering quantity that maximizes expected loss aversion utility, the relevant expected profit of a retailer turns to be smaller under a bigger loss aversion coefficient. For this point, a retailer needs to balance between expected loss aversion utility maximization and expected profit maximization in deciding the optimal ordering policy in a dual-sourcing problem.

Originality/value

This paper reveals the influence of loss aversion on a retailer’s ordering decision in a dual-sourcing problem. Managerial insights are suggested to devise the optimal ordering policy for retailers in practice.

Citation

Xu, X., Ji, P. and Chan, F.T.S. (2023), "Retailers’ optimal ordering policies for a dual-sourcing procurement", Industrial Management & Data Systems, Vol. 123 No. 3, pp. 1052-1072. https://doi.org/10.1108/IMDS-07-2022-0458