Optimal multi-product supplier selection under stochastic demand with service level and budget constraints using learning vector quantization neural network

Abstract

In today’s competitive marketplace demand, evaluation and selection of suppliers are pivotal for firms, and therefore decision makers need to select suppliers and the optimal order quantities when outsourcing. However, there is uncertainty and risk due to lack of precise data for supplier selection. Uncertainty can impose shortage or overstocks, because of stochastic demand, to firms; in this case, considering inventory control is essential. In this research, an appropriate spatial model is developed for a multi-product supplier selection model with service level and budget constraints. Learning Vector Quantization Neural Network is used to find the optimal number of decision variables with the goal of maximizing the expected profit of supply chains. By analyzing a practical example and conducting sensitivity analysis, we find that corporate profit will be maximized if the optimal integration of suppliers and the optimal order quantities from each supplier is determined. In addition, budget and service level should be considered in the process of finding the best result.