Supplier selection and order allocation in the presence of suppliers with exact annual capacity

Abstract

In this paper, we focus on the supplier selection and order quantity allocation for a single retailer. The retailer orders a product from multiple suppliers with capacities, adds value to the product and fulfils the demand while meeting the minimum quality level. There is a distinct difference between our work and the prior works in the literature in that we assume the (annual) capacities of the suppliers to be exact annual capacities, i.e., the total order amount in a given calendar/fiscal year from a supplier must be less than or equal to its capacity. First, we discuss the implications of this exact annual capacity assumption on the ordering policy of the retailer. Next, to determine an ordering policy, we propose a heuristic algorithm using a novel idea of iteratively updating the annual ordering cost estimates. We demonstrate the efficacy of the proposed algorithm on randomly generated instances.