The optimal number of suppliers considering the quantity discount and supplier failure

Abstract

Each company want to minimize its expected cost by selecting multiple suppliers. In this paper, we presented a model to determine the optimal number of suppliers to minimize the expected cost considering quantity discount and supplier failure probability. We carried out several sensitivity analysis to find out the elements that affect the optimal number of suppliers. The results indicate that when suppliers are highly reliable, sole sourcing is the lowest cost approach under all experimental conditions. However, as the suppliers become less reliable, additional suppliers may be required to obtain the lowest cost. Finally, it was shown that only in the extreme conditions of unreliable suppliers, high loss to operational cost per supplier, and low ability to mitigate the failure from a partial set of suppliers, having a large number of suppliers is an effective strategy.