Supplier selection problem for a retailer under random yield

Abstract

Using a simple one-period model of a supply chain with one retailer and multiple risky suppliers, this paper studies questions of supplier selection and ordering policies among firms. A supplier is said to be unreliable when the quantity of goods effectively delivered by that supplier cannot correspond exactly to the order quantity. The question facing the retailer is to determine how many suppliers to contract and how much to order from each contracted supplier. We not only present the structural properties of the optimal ordering policy, but also analyze the effect of random yield and fixed ordering cost on the optimal policy and the retailer’s profit.