Supplier Selection & Order Allocation Problem Subject To Risks

Abstract

Supplier selection is the process by which firms identify, evaluate and contract with supplies. The supplier selection process deploys an enormous amount of a firm’s financial resources and plays crucial role for the success of any organization. The main objective of supplier selection is to reduce purchase risk, maximize overall value to the purchaser, and develop closeness and long-term relationships between buyers and suppliers. As a result, selecting appropriate suppliers becomes one of the most important aspects of purchasing and supply chain management for many industries selecting the right supplier has a direct and positive impact on firm’s performance, as well as helping buying firms to achieve longterm competitive advantages and gain added value from the supply chain. The objective is to study the effects of an order allocation procedure in a supply chain. This supply chain consists of a company that can order products from multiple suppliers. At any time of an order, decisions must be made by the company concerning the allocation of products to the suppliers and the respective order quantities, so that the total purchasing cost is minimized, while maintaining a specified service level. For this purpose, we have developed a solution algorithm and tested it to examine its effectiveness in terms of the service level and the company’s total purchasing cost. The final section of the paper summarizes the conclusions of this study and suggests directions for future research.