A multi-objective integer linear program to integrate supplier selection and order allocation with market demand in a supply chain

Abstract

In today's competitive scenario, market demand is highly dynamic and volatile in nature. Production volumes are directly dependent on demand of finished goods which, in turn, determines the order allocation of different parts to suppliers. Demand of finished products varies on continuous basis, making selection of right suppliers and allocation of order quantity of parts a challenging task. In this paper, two independent optimisation approaches for determining product mix and supplier selection and order model are integrated to address the direct effect of market demand on procurement of parts. The paper proposes a multi-objective integer linear program (MOILP) approach for integrated dynamic supplier selection and order allocation with market demand for efficient procurement. The proposed MOILP model optimises order allocation and supplier selection by integrating supplier's capacities, their procurement costs, fixed logistics charges with machine capacity constraints and market demand. The model is evaluated and demonstrated with the help of an illustration and is solved in LINGO 10 using randomly generated data.