Multisupplier procurement under uncertainty in industrial fishing environments

Abstract

In this paper we address the issue of multi supplier sourcing as a tool for hedging against supply yield uncertainty. Our work was motivated by the problems in the fishing industry whereby fish processing firms are constantly faced with the problems of random supply yields. We formulated a mathematical programming model that can be used to determine the quantities to be ordered from two or more suppliers so as to minimize annual expected procurement cost while attempting to satisfy demand requirements and operating constraints. The cost included are purchasing cost, inventory related cost and ordering cost. We assume that at the beginning of a planning horizon comprised of 12 periods a firm enters into minimum contractual agreement with two suppliers, and in return each supplier offers a discounted price schedule.

In our numerical analysis we solved the model for both the 2-supplier case and the single supplier case and compared the cost of using a single supplier versus two suppliers under varying levels of yield variability. We compared deterministic solutions for the single and two-supplier case and use Monte Carlo simulation to assess the robustness of the solutions under varying levels of yield uncertainty. Results show that as the variability of the yield rate increases it becomes cost effective to use two suppliers as a means for hedging against uncertainty. We compared the results from our model to that of a heuristic procedure proposed by Parlar and Wang, an alternative approach for solving the 2-supplier inventory problem. The results indicated that our model provides superior solutions to that of the heuristic procedure.