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Multiple sourcing and order allocation problem under supplier disruption risk and quantity discount

Multiple sourcing and order allocation problem under supplier disruption risk and quantity discount In this paper, we developed two stochastic mixed integer linear programs. The objective is to determine the optimal order quantities for each supplier in order to maximise the expected net profit (ENP) under disruption risk. In fact, to model this situation, overall combination of disruption probability under different settings is calculated first, and then the expected profit function for neutral risk setting is developed. Afterward, this model is extended to minimise the operational loss to model the risk averse behaviour. Discount on total quantity and on business volume are considered. The two models are illustrated through a numerical study and sensitivity analysis. The result shows that the expected profit and expected losses are very influenced by failure probability and discount levels. In fact, in presence of disruption risk, it is better to allocate order quantity from supplier who offers large discount level. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Services, Economics and Management Inderscience Publishers

Multiple sourcing and order allocation problem under supplier disruption risk and quantity discount

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Publisher
Inderscience Publishers
Copyright
Copyright © Inderscience Enterprises Ltd
ISSN
1753-0822
eISSN
1753-0830
DOI
10.1504/IJSEM.2018.097788
Publisher site
See Article on Publisher Site

Abstract

In this paper, we developed two stochastic mixed integer linear programs. The objective is to determine the optimal order quantities for each supplier in order to maximise the expected net profit (ENP) under disruption risk. In fact, to model this situation, overall combination of disruption probability under different settings is calculated first, and then the expected profit function for neutral risk setting is developed. Afterward, this model is extended to minimise the operational loss to model the risk averse behaviour. Discount on total quantity and on business volume are considered. The two models are illustrated through a numerical study and sensitivity analysis. The result shows that the expected profit and expected losses are very influenced by failure probability and discount levels. In fact, in presence of disruption risk, it is better to allocate order quantity from supplier who offers large discount level.

Journal

International Journal of Services, Economics and ManagementInderscience Publishers

Published: Jan 1, 2018

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