A hierarchical model for optimal supplier selection in multiple sourcing contexts

This paper addresses a crucial objective of the strategic purchasing function in supply chains, i.e. optimal supplier selection. We present a hierarchical extension of the data envelopment analysis (DEA), the most widespread method for supplier rating in the literature, for application in a multiple sourcing strategy context. The proposed hierarchical technique is based on three levels. First, a modified DEA approach is used to evaluate the efficiency of each supplier according to some criteria proposed by the buyer. Second, the well known technique for order preference by similarities to ideal solution (TOPSIS) is applied to rank the maximally efficient suppliers given by the previous step. Third and finally, a linear programming problem is stated and solved to find the quantities to order from each maximally efficient supplier in the multiple sourcing context. The presented approach is able to straightforwardly discern between efficient and inefficient partners, avoid the confusion between efficient and effective suppliers and split the supply in a multiple sourcing context. The hierarchical model is applied to the supply of a C class component to show its robustness and effectiveness, while comparing it with the DEA and TOPSIS approaches.