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How many suppliers are best? A decision-analysis approach

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  • Berger, Paul D.
  • Gerstenfeld, Arthur
  • Zeng, Amy Z.
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    Abstract

    As more supply chains are becoming dependent upon suppliers, an interruption of supply networks can obstruct the functionality of the entire supply chain. The purpose of this paper is to present what we believe is a useful way to think about the number of suppliers needed in the presence of risks. We model the decision-making process using a decision tree approach. We consider catastrophic, "super-events," which affect many/all suppliers, as well as "unique events" that affect only a single supplier. The probabilities of these events, the financial loss caused by disasters, and the operating cost of working with multiple suppliers are captured by decision trees, from which the expected cost function is obtained and the optimal number of suppliers is determined. Our methodology will help purchasing managers, materials management, as well as academics that are considering such issues.

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    Bibliographic Info

    Article provided by Elsevier in its journal Omega.

    Volume (Year): 32 (2004)
    Issue (Month): 1 (February)
    Pages: 9-15

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    Handle: RePEc:eee:jomega:v:32:y:2004:i:1:p:9-15

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    Related research

    Keywords: Suppliers Sourcing Purchasing management Decision-making under risk Decision trees;

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    Cited by:
    1. Yim, Andrew, 2010. "Quality Cost and Failure Risk in the Choice of Single versus Multiple Sourcing," MPRA Paper 27858, University Library of Munich, Germany.
    2. Sawik, Tadeusz, 2011. "Selection of supply portfolio under disruption risks," Omega, Elsevier, vol. 39(2), pages 194-208, April.
    3. Sarkar, Ashutosh & Mohapatra, Pratap K.J., 2009. "Determining the optimal size of supply base with the consideration of risks of supply disruptions," International Journal of Production Economics, Elsevier, vol. 119(1), pages 122-135, May.
    4. Nam, Seong-Hyun & Vitton, John & Kurata, Hisashi, 2011. "Robust supply base management: Determining the optimal number of suppliers utilized by contractors," International Journal of Production Economics, Elsevier, vol. 134(2), pages 333-343, December.
    5. Song, Dong-Ping & Dong, Jing-Xin & Xu, Jingjing, 2014. "Integrated inventory management and supplier base reduction in a supply chain with multiple uncertainties," European Journal of Operational Research, Elsevier, vol. 232(3), pages 522-536.
    6. Tang, Ou & Nurmaya Musa, S., 2011. "Identifying risk issues and research advancements in supply chain risk management," International Journal of Production Economics, Elsevier, vol. 133(1), pages 25-34, September.
    7. Olhager, Jan & Prajogo, Daniel I., 2012. "The impact of manufacturing and supply chain improvement initiatives: A survey comparing make-to-order and make-to-stock firms," Omega, Elsevier, vol. 40(2), pages 159-165, April.
    8. Ruiz-Torres, Alex J. & Mahmoodi, Farzad, 2007. "The optimal number of suppliers considering the costs of individual supplier failures," Omega, Elsevier, vol. 35(1), pages 104-115, February.
    9. Wagner, Stephan M. & Bode, Christoph & Koziol, Philipp, 2011. "Negative default dependence in supplier networks," International Journal of Production Economics, Elsevier, vol. 134(2), pages 398-406, December.
    10. Li, Haitao & Womer, Keith, 2012. "Optimizing the supply chain configuration for make-to-order manufacturing," European Journal of Operational Research, Elsevier, vol. 221(1), pages 118-128.
    11. Meena, P.L. & Sarmah, S.P. & Sarkar, A., 2011. "Sourcing decisions under risks of catastrophic event disruptions," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 47(6), pages 1058-1074.
    12. Qi, Xiangtong, 2007. "Order splitting with multiple capacitated suppliers," European Journal of Operational Research, Elsevier, vol. 178(2), pages 421-432, April.
    13. Meena, P.L. & Sarmah, S.P., 2013. "Multiple sourcing under supplier failure risk and quantity discount: A genetic algorithm approach," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 50(C), pages 84-97.
    14. Sawik, Tadeusz, 2013. "Selection of resilient supply portfolio under disruption risks," Omega, Elsevier, vol. 41(2), pages 259-269.
    15. Xia, Yu, 2011. "Competitive strategies and market segmentation for suppliers with substitutable products," European Journal of Operational Research, Elsevier, vol. 210(2), pages 194-203, April.
    16. Sawik, Tadeusz, 2014. "Joint supplier selection and scheduling of customer orders under disruption risks: Single vs. dual sourcing," Omega, Elsevier, vol. 43(C), pages 83-95.
    17. Yue, Jinfeng & Xia, Yu & Tran, Thuhang, 2010. "Selecting sourcing partners for a make-to-order supply chain," Omega, Elsevier, vol. 38(3-4), pages 136-144, June.

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