Multi-strategy supplier selection for commodity sourcing

Abstract

With the globalization and the emergence of the extended enterprise of interdependent organizations, there has been a steady increase in outsourcing of parts and services. When the supply base of a manufacturer is dispersed globally, the purchaser must decide what item and quantity to order from each supplier, when to order and where to ship. The scenario considered in this paper assumes that suppliers have limited manufacturing capacity, and that demand over a finite planning horizon at each plant of the manufacturing network is known. A cost-effective procurement strategy for the multiperiod horizon needs to be determined. This work develops an analytical model for strategic supplier selection wherein the capacity constraints of each potential supplier, inbound logistics cost variations between truckload and less-than-truckload, and inventory costs are considered. We present a three-stage analytical approach for the solution: in stage one, we solve a carrier selection problem followed by an associated inventory cost estimation in stage two. Total landed cost based supplier selection model is developed in the final stage.