A supplier allocation model considering delivery failure, maintenance and supplier cycle costs

Supplier decision-making is a critical component of supply chain management given the recent increased reliance of many organizations on their suppliers. This paper presents a decision model that optimizes the allocation of demand across a set of suppliers by considering the expected losses due to supplier failure to deliver, the purchasing costs, and the cost of maintaining a set of suppliers. In the case of multiple sourcing, the model takes into consideration the ability of suppliers to increase their output when one or more suppliers fail to deliver. A sensitivity analysis is performed to illustrate the model's behavior with regards to parameters such as the probability of supplier failure, the cost of supplier failure, and the output flexibility of the suppliers. Finally, we present an application case where the model's potential to analyze the supplier demand allocation decision is demonstrated.