A scenario-based stochastic model for supplier selection in global context with multiple buyers, currency fluctuation uncertainties, and price discounts

Abstract

Suppliers network in the global context under price discounts and uncertain fluctuations of currency exchange rates have become critical in today’s world economy. We study the problem of suppliers’ selection in the presence of uncertain fluctuations of currency exchange rates and price discounts. We specifically consider a buyer with multiple sites sourcing a product from heterogeneous suppliers and address both the supplier selection and purchased quantity decision. Suppliers are located worldwide and pricing is offered in suppliers’ local currencies. Exchange rates from the local currencies of suppliers to the standard currency of the buyer are subject to uncertain fluctuations overtime. In addition, suppliers offer discounts as a function of the total quantity bought by the different customer’ sites over the time horizon irrespective of the quantity purchased by each site.We first provide a literature review on the overlapping items of suppliers’ selection and risk due to currency. Then, we model the problem using the mixed integer scenario-based stochastic programming method. The objective is to minimize the total system expected cost (purchased price+inventory cost+transportation cost+supplier management cost). Finally, we conduct numerical studies to show the value of the proposed model and we discuss some relevant managerial insights into the theory and practice of supply chain management research.