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The optimal number of suppliers considering the costs of individual supplier failures

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  • Ruiz-Torres, Alex J.
  • Mahmoodi, Farzad
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    Abstract

    This paper utilizes the decision tree approach to determine the optimal number of suppliers in the presence of supplier failure risks. Previous proposed models have considered only two states of nature: all suppliers fail to deliver and not all suppliers fail to deliver. In practice, however, there is clearly a partial loss associated with the failure of any individual supplier. We present models that allow a more realistic decision-making process by taking into consideration the independent risks of individual supplier failures when the probability of failure for each of the suppliers is equal as well as the case where the probability of failure from each of the suppliers is not equal. We also consider various levels of supplier failure probability and possible procurement or operating cost savings gained from using less reliable suppliers. The results indicate that when suppliers are highly reliable, sole sourcing is the lowest cost approach under all experimental conditions. However, as the suppliers become less reliable, additional suppliers may be required to obtain the lowest cost. Finally, it was shown that only in the extreme conditions of unreliable suppliers, high loss to operational cost per supplier, and low ability to mitigate the failure from a partial set of suppliers, having a large number of suppliers is an effective strategy.

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    Bibliographic Info

    Article provided by Elsevier in its journal Omega.

    Volume (Year): 35 (2007)
    Issue (Month): 1 (February)
    Pages: 104-115

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    Handle: RePEc:eee:jomega:v:35:y:2007:i:1:p:104-115

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    Related research

    Keywords: Supply chain management Sourcing Purchasing Risk analysis;

    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Crama, Y. & Pascual J., R. & Torres, A., 2004. "Optimal procurement decisions in the presence of total quantity discounts and alternative product recipes," European Journal of Operational Research, Elsevier, vol. 159(2), pages 364-378, December.
    2. Berger, Paul D. & Gerstenfeld, Arthur & Zeng, Amy Z., 2004. "How many suppliers are best? A decision-analysis approach," Omega, Elsevier, vol. 32(1), pages 9-15, February.
    3. Lee, Hau L. & Whang, Seungjin, 2005. "Higher supply chain security with lower cost: Lessons from total quality management," International Journal of Production Economics, Elsevier, vol. 96(3), pages 289-300, June.
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    Cited by:
    1. Sawik, Tadeusz, 2011. "Selection of supply portfolio under disruption risks," Omega, Elsevier, vol. 39(2), pages 194-208, April.
    2. 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.
    3. Golmohammadi, Davood & Mellat-Parast, Mahour, 2012. "Developing a grey-based decision-making model for supplier selection," International Journal of Production Economics, Elsevier, vol. 137(2), pages 191-200.
    4. 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.
    5. Li, Lei & Zabinsky, Zelda B., 2011. "Incorporating uncertainty into a supplier selection problem," International Journal of Production Economics, Elsevier, vol. 134(2), pages 344-356, December.
    6. 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.
    7. 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.
    8. 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.
    9. Sawik, Tadeusz, 2013. "Selection of resilient supply portfolio under disruption risks," Omega, Elsevier, vol. 41(2), pages 259-269.
    10. 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.
    11. 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.
    12. 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.
    13. Gunasekaran, Angappa & Lai, Kee-hung & Edwin Cheng, T.C., 2008. "Responsive supply chain: A competitive strategy in a networked economy," Omega, Elsevier, vol. 36(4), pages 549-564, August.

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