Optimal Multi-Period Multi-Product Supplier Selection and Order Allocation: Balancing Supplier Development and Supplier Switching

Manufacturing firms are constantly searching for more competitive suppliers to lower purchasing cost. The sourcing decision often involves whether to invest in incumbent suppliers or to switch to new suppliers. While a broad branch of literature have investigated the supplier development and the supplier switching decisions individually, limited research focuses on how manufacturers should balance these two strategies and optimize the associated supplier selection and order allocation decisions. This paper investigates a multi-period multi-product supplier selection and order allocation problem of a manufacturer. The manufacturer can either invest in incumbent suppliers or switch to new suppliers. A new mixed integer programming mathematical model is developed considering various criteria for multiple suppliers. Because the proposed problem is NP-hard, we apply IBM ILOG CPLEX to obtain optimal solutions. The effectiveness of the proposed model is demonstrated through a numerical example. Extensive analysis is conducted to study the impacts of different parameters.