The total cost of logistics in supplier selection, under conditions of multiple sourcing, multiple criteria and capacity constraint

Abstract

Little attention is given in the literature to decisions on the appropriate selection of suppliers, and on assigning order quantities to these suppliers, in the case of multiple sourcing, with multiple criteria and with suppliers’ capacity constraints. Only a few mathematical programming models to analyse such decisions have been published to date, and these have tended to consider only net price as the cost of purchasing, although the costs of transportation, ordering and storage may be significantly important to the decision. In this paper a mixed integer non-linear programming model is presented to solve the multiple sourcing problem, which takes into account the total cost of logistics, including net price, storage, transportation and ordering costs. Buyer limitations on budget, quality, service, etc. can also be considered in the model. An algorithm is proposed to solve the model, and the model is illustrated using a numerical example.