Abstract
-
Manufacturing firms are constantly searching
for more competitive suppliers to lower purchasing cost. The
sourcing decision often involves whether to invest in
incumbent suppliers or to switch to new suppliers. While a
broad branch of literature have investigated the supplier
development and the supplier switching decisions
individually, limited research focuses on how manufacturers
should balance these two strategies and optimize the
associated supplier selection and order allocation decisions.
This paper investigates a multi-period multi-product
supplier selection and order allocation problem of a
manufacturer. The manufacturer can either invest in
incumbent suppliers or switch to new suppliers. A new
mixed integer programming mathematical model is
developed considering various criteria for multiple
suppliers. Because the proposed problem is NP-hard, we
apply IBM ILOG CPLEX to obtain optimal solutions. The
effectiveness of the proposed model is demonstrated through
a numerical example. Extensive analysis is conducted to
study the impacts of different parameters.
Keywords
–
Order allocation, supplier development,
supplier selection, switching
I. INTRODUCTION
In today’s fierce global competition, manufacturing
firms face relentless pressure to reduce manufacturing
cost and quickly deliver high quality products to meet
sophisticated demand. Under this continuous pressure,
many firms turn to outsource the key components and/or
semi-finished products to suppliers. Therefore, supplier
selection and order allocation become essential in the
management of successful organizations [1].
When a product has been purchased from a particular
supplier for a period of time, the buying firm has the
opportunity to decide whether to keep collaboration with
incumbent suppliers or switch part or all of the products
to an alternative supplier [2]. The reason for switching to
an alternative supplier might stem from inability of
incumbent suppliers to meet the buying firm’s needs and
increased cost, substitute input materials, lower labor
costs, or other alternative production technologies [3].
Under these circumstances, the manufacturer can
follow two principal sourcing strategies, i.e., supplier
development/investment [2] and supplier switching [4].
Supplier development involves activities taken by the
manufacturers to help the suppliers to improve the cost,
quality, delivery or service performance, or upgrade their
capabilities to satisfy customer requirements [5]. With
supplier switching, the manufacturer searches for
alternative sources of supply and switches the
procurement of the product to a more capable supplier
with better quality, quicker delivery or lower price, i.e.,
better fulfillment of customer needs [6]. Because of these
benefits, supplier switching has become a vital strategy
for the manufacturers in purchasing management [7].
Although both the supplier development and supplier
switching decisions have been extensively studied in the
literature, they have traditionally been investigated rather
independently at a strategic level [8]. Few have
considered simultaneously these two decisions. For
example, reference [4] have done pioneering work on
gaining more knowledge about supplier switching
decisions in the presence of information asymmetry,
switching cost, and competitive reactions of the
incumbent suppliers. Following this work, reference [9]
has extended the basic static framework to a dynamic one
by assuming that the supplier learns the production costs
over time. The optimal setup and switching strategy as
well as the optimal supply chain contract have been
characterized. Further, a firm’s cost-based sourcing
decision of whether to invest in an incumbent supplier or
switch to an alternative supplier in order to realize lower
purchasing costs has been investigated in [2] via a profit-
maximizing framework. More recently, reference [10] has
investigated the single-period sourcing problem in which
the buyer determines the sources that should be utilized
and to what extent, subject to stochastic demand and
considering multiple competing suppliers with varying
cost structures, price schemes, and capacities. Because the
problem is NP-hard, a dynamic programming model has
been devised and solved.
However, there is little research on the supplier
selection and order allocation problem incorporating both
supplier investment and supplier switching decisions.
Such incorporation brings additional complexities and
requires a better and deeper understanding quantitatively.
Therefore, the primary goal of this research is to develop
a new mathematical formulation of the supplier selection
and order allocation problem to balance supplier
investment and supplier switching decisions in a multi-
period multi-product setting. The usefulness and
effectiveness of the model are demonstrated by various
numerical studies.
The remainder of this paper is organized as follows.
In Section II, the proposed multi-period multi-product
supplier selection and order allocation problem is
presented and the detailed mathematical formulation of
the problem is also elaborated. In Section III, a numerical
example is presented and solved to validate the usefulness
Optimal Multi-Period Multi-Product Supplier Selection and Order Allocation:
Balancing Supplier Development and Supplier Switching
L. X. Cui
1
, L. Bai
1
, Z. P. Cui
2
1
School of Information, Central University of Finance and Economics, Beijing, China
2
College of Management and Economics, Tianjin University, Tianjin, China
(cuilixin@cufe.edu.cn)
978-1-5386-0948-4/17/$31.00 ©2017 IEEE 1985