Centre for Supply Chain Management
CMA Canada Supply Chain Managment Speaker Series: Sourcing Decisions with Stochastic Supplier Reliability and Stochastic Demand
Gerard J. Burke, Janice E. Carrillo, Asoo J. Vakharia
published: 2005 | Research publication | CMA Cda Supply Chain Mgmt SS
ABSTRACT:††Supplier sourcing strategies are a crucial factor driving supply chain success. In particular, a firmís allocation decision for determining an appropriate supplier set and order allotment impacts all competitive dimensions for the delivery of finished goods to its customers. While many firms utilize a single supplier strategy, others diversify their supply risk by sourcing from multiple suppliers. In this paper, we investigate the implications of uncertain supplier reliability on a firmís sourcing decisions in an environment with stochastic demand. In particular, we characterize conditions under which a firm should choose a single versus multiple supplier sourcing strategy. We also show that a supplierís unit cost dominates any reliability considerations when determining whether a particular supplier receives an order. A counterintuitive result is
that placing a single order with the lowest cost supplier is preferable when demand is highly uncertain. Based on numerical examples, we also illustrate the impact of minimum order quantities on supplier sourcing decisions.
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revised Mar 3/05