Supplier selection in make-to-order environment with risks

Abstract

The problem of allocation of orders for parts among part suppliers in a customer driven supply chain with operational risk is formulated as a stochastic single- or bi-objective mixed integer program. Given a set of customer orders for products, the decision maker needs to decide from which supplier to purchase parts required for each customer order to minimize total cost and to mitigate the impact of delay risk. The selection of suppliers and the allocation of orders is based on price and quality of purchased parts and reliability of on time delivery. To control the risk of delayed supplies, the two popular percentile measures of risk are applied: value-at-risk and conditional value-at-risk. The proposed approach is capable of optimizing the supply portfolio by calculating value-at-risk of cost per part and minimizing mean worst-case cost per part simultaneously. Numerical examples are presented and some computational results are reported.