Abstract: Since the uncertainty of production condition and other external factors in production process, suppliers' yield are random; meanwhile, unpredicted disruption events during delivery also occasionally take place. In order to reduce these two types of supply risks during procurement, many companies adopt dual-sourcing strategy. The optimal decision of dual sourcing procurement with suppliers' random yield and disruption is studied in this paper. A model is proposed in which one manufacturer order from two suppliers which have random yield and supply disruption with the uncertain demand. By solving the model, the optimal order quantity for the manufacturer and the optimal production quantities for suppliers in two situations is obtained:(1) the suppliers have only random yield without disruption, and (2) the suppliers have random yield and disruptions. It is found that, the reduction of the yield random not only increases the suppliers' profit but also improves the manufacturer's profit. Therefore, the manufacturer needs help the suppliers to improve the yield. The optimal production quantities for suppliers increase then decrease as the improvement in own yield, but the optimal production quantities for suppliers decrease as the improvement of anther supplier's yield. If one supplier's yield can improve to a certain extent, the manufacturer can just order from one rather than from two. The reduction of suppliers' disruption can help the manufacturer obtain higher order quantity. If one supplier's supply disruption reduces, the manufacturer will order more from this supplier and orders less from the another supplier. Dual-sourcing procurement is a temporary strategy used by the manufacturer in responding to the risk of random yield and disruption. As the risk reduces, the manufacturer can purchase from only one supplier.

Key words: supply disruptions, random yield, dual-sourcing, game theory