Title: Supplier allocation and safety stock determination based on supplier reliability

Authors: Alex J. Ruiz-Torres, Farzad Mahmoodi, Francisco J. Lopez

Addresses: Facultad de Administracion de Empresas, Departamento de Gerencia, Universidad de Puerto Rico – Rio Piedras, P.O. Box 23332, San Juan, PR 00931-3332, Puerto Rico. ' School of Business, Clarkson University, Box 5790, Potsdam, NY 13699-5790, USA. ' School of Business, Macon State College, 100 College Station Dr., Macon, GA 31206, USA

Abstract: Supplier selection and allocation of demand across suppliers has become a critical activity for organisations. Safety stocks are necessary to protect against shortages caused by supplier delivery failures and to achieve reasonable customer service levels. We present a new supplier selection model that determines safety stocks based on the supplier delivery reliability. The model includes procurement costs, supplier management costs, inventory carrying costs, and loss costs due to missed deliveries. An example is provided, followed by a sensitivity analysis that illustrates how the model can be used to analyse different sourcing strategies under various cost parameters.

Keywords: supply chain management; SCM; supplier selection; supplier allocation; safety stock determination; supplier failure costs; supplier reliability; safety stocks; procurement costs; supplier management costs; inventory carrying costs.

DOI: 10.1504/IJLSM.2010.035630

International Journal of Logistics Systems and Management, 2010 Vol.7 No.4, pp.412 - 430

Published online: 01 Oct 2010 *

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