Supplier selection and demand allocation under supply disruption risks

In this paper, we have studied a problem of supplier selection and demand allocation under the risks of supplier failure due to the occurrence of disruptive events. An analytical model and solution procedure is developed to determine the optimal number of suppliers and optimal allocation of demand among the selected suppliers. The buyer takes the decision about how many suppliers should be selected and how much order quantity should be allocated to each selected suppliers when suppliers offer quantity discount and are exposed to risks of failure. In the model, we have considered different failure probability, capacity, and quantity-based price discount for each supplier. The problem is difficult to solve with exact method; therefore, a new solution procedure is developed. A numerical study is carried out to illustrate the proposed model and solution procedure. Finally, various guidelines for the managers are drawn from the sensitivity analysis.