Supplier selection and order allocation problems considering regional and supplier disruptions with a risk-averse strategy

Abstract

This paper studies optimal supplier selection and order allocation problems considering regional and supplier disruptions. We suggest a pricing policy that takes into account disruption probability, which reflects the trade-off relationship between cost and risk. We present a risk-neutral model considering the expected cost and a risk-averse model considering the conditional value-at-risk (CVaR) measure. We also present a weighted CVaR model that considers various tolerance levels simultaneously. Several multi-objective models that consider both risk-averse and risk-neutral models are proposed. We develop methodologies to solve multi-objective models by applying a convex combination or a modified augmented Tchebycheff distance. Finally, we show the performance of solution approaches through numerical experiments and present the supplier dependency ratio, which can construct an appropriate portfolio. We offer a Pareto frontier as the result of the multi-objective model and derive managerial insights, suggesting a decision-making criterion between disruption risk and the expected cost.