A Joint Supplier Selection and Order Allocation Model with Disruption Risks in Centralized Supply Chain

Abstract Supplier’s coordination plays a vital role in managing a supply chain. Organizations have learned that selecting the right suppliers and allocating right orders are the keys to success. The presence of disruption risks in the supply chain creates more complexity in the supplier selection and order allocation process. This paper presents a mixed-integer nonlinear programming model to optimize supplier selection and order allocation simultaneously in centralized supply chains considering disruption risks. In order to reduce disruption effects, two protective policies are taken into account. Protection policy for the selected suppliers and emergency inventory allocation policy for the protected suppliers are utilized in this study. The presented model proves to be non-convex, indicating that, conventional methods are not capable of solving such a complex problem. The proposed method is exemplified by numerical instances. The results indicate that with an increase in the disruption probability the factors which effect the decisions related to supplier selection and order allocation are altered. At the low disruption probability, the disruption risk plays a key role in the decisions, while at the higher disruption probability, wholesale price and disruption risk are the dominant factors to form the decisions.