Supplier Selection in a Scenario Based Stochastic Model with Uncertain Defectiveness and Delivery Lateness Rates

Due to today’s globalization as well as outsourcing practices of the companies, the Supply Chain (SC) performances have become more dependent on the efficient movement of material among places that are geographically dispersed, where there is more chance for disruptions. One such disruption is the quality and delivery uncertainties of outsourcing. These uncertainties could lead the products to be unsafe and, as is the case in a number of recent examples, companies may have to end up in recalling their products. As a result of these problems, there is a need to develop a methodology for selecting suppliers globally in view of risks associated with low quality and late delivery. Accordingly, we developed a two-stage stochastic model that captures the risks associated with uncertainty in quality and delivery as well as a solution procedure for the model. The stochastic model developed simultaneously optimizes supplier selection and purchase quantities under price discounts over a time horizon. In particular, our target is the study of global organizations with multiple sites and multiple overseas suppliers, where the pricing is offered in suppliers’ local currencies. Our proposed methodology is applied to a case study for a US automotive company having two assembly plants and four potential global suppliers to illustrate how the proposed model works in practice.

Authors:

• Abeer Amayri
• Akif A. Bulgak

Keywords:

• Global supply chains
• quality
• stochastic programming
• supplier selection.

References:

[1] Amiri-Aref, M., Javadian, N., and Kazemi, M., "A New Fuzzy Positive
and Negative Ideal Solution for Fuzzy TOPSIS," Wseas transaction on
circuits and systems, vol. 11, pp. 92-103, 2012.
[2] Cheraghi, S. H., Dadashzadeh, M., and Subramanian, M., "Critical
Success Factors For Supplier Selection: An Update," Journal Of Applied
Business Research, vol. 20, pp. 91-108, 2004.
[3] Dahel, N. E., "Vendor selection and order quantity allocation in volume
discount environments," Supply Chain Management: An International
Journal, vol. 8, pp. 335-342, 2003.
[4] Dai, T. and Qi, X., "An acquisition policy for a multi-supplier system
with a finite-time horizon," Computers & operations research, vol. 34,
pp. 2758-2773, 2007.
[5] Ghodsypour, S. H. and O’Brien, C., "The total cost of logistics in
supplier selection, under conditions of multiple sourcing, multiple
criteria and capacity constraint," International Journal of Production
Economics, vol. 73, pp. 15-27, 8/31/ 2001.
[6] Govindan, K., Rajendran, S., Sarkis, J., and Murugesan, P., "Multi
Criteria Decision Making Approaches for Green Supplier Evaluation
and Selection: A Literature Review," Journal of Cleaner Production.
[7] Hammami, R., Temponi, C., and Frein, Y., "A scenario-based stochastic
model for supplier selection in global context with multiple buyers,
currency fluctuation uncertainties, and price discounts," European
Journal of Operational Research, vol. 233, pp. 159-170, 2014.
[8] IMF Exchange Rates. (2014). Representative rates for the period
January 01, 2014 - December 31, 2014. Available:
http://www.imf.org/external/index.htm
[9] Kara, S. S., "Supplier Selection with an Integrated Methodology in
Unknown Environment," Expert Systems with Applications, vol. 38, pp.
2133-2139, 2011.
[10] Kei, Y. and Tan, K. H., "Quality risk in global supply chain," presented
at the Supply Chain Management and Information Systems (SCMIS),
2010 8th International Conference on,, Hong Kong, 2010, 2010.
[11] Li, L. and Zabinsky, Z. B., "Incorporating Uncertainty into a Supplier
Selection Problem," International Journal of Production Economics,
vol. 134, pp. 344-356, 2011.
[12] Ruiz-Torres, A. J. and Mahmoodi, F., "The optimal number of suppliers
considering the costs of individual supplier failures," Omega, vol. 35,
pp. 104-115, 2// 2007.
[13] Tse, Y. K., Tan, K. H., and Ng, S., "Managing Product Quality Risk in
Global Supply Chain," Icoscm 2009 - Proceedings of the 3rd
International Conference on Operations and Supply Chain
Management, vol. 3, pp. 259-267, 2009.
[14] Wadhwa, V. and Ravindran, A. R., "Vendor Selection in Outsourcing,"
Computers & Operations Research, vol. 34, pp. 3725-3737, Dec 2007. [15] Waters, D., Supply chain risk management: vulnerability and resilience
in logistics: Kogan Page Publishers, 2011.
[16] Wong, L. L. T. N. and Sun, Z., "CSR and Environmental Criteria in
Supplier Selection," presented at the Proceedings of the Asia Pacific
Industrial Engineering & Management Systems Conference, Hong
Kong.
[17] Xie, G., Wang, S. Y., and Lai, K. K., "Quality Improvement in
Competing Supply Chains," International Journal of Production
Economics, vol. 134, pp. 262-270, Nov 2011.
[18] Xu, N. and Nozick, L., "Modeling supplier selection and the use of
option contracts for global supply chain design," Computers &
Operations Research, vol. 36, pp. 2786-2800, 10// 2009.