Skip to main content
SpringerLink
Log in

Stochastic programming for vendor portfolio selection and order allocation under delivery uncertainty

  • Regular Article
  • Published:
OR Spectrum Aims and scope Submit manuscript

Abstract

Outsourcing has been employed in supply chain management to reduce capital investment, enhance flexibility, reduce manufacturing cost, shorten cycle time, and improve service quality. This study aims to propose a portfolio optimization model considering risk diversification and delivery uncertainty for vendor portfolio selection and order allocation. Three portfolio objectives for maximizing performance of selected vendors, diversifying the portfolio risk, and minimizing total cost are considered. A comparison of two proposed stochastic programming techniques shows that robust optimization can generate a better solution whereas probabilistic models can identify the potential alternative vendor based on a data-driven approach. An application study was conducted in a leading semiconductor company in Taiwan to estimate the validity of the proposed approach. The results have shown practical viability that the proposed approach can generate the results with better vendor performance, diversified risk, and minimal total cost.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2
Fig. 3
Fig. 4
Fig. 5
Fig. 6
Fig. 7

Similar content being viewed by others

References

  • Berger PD, Gerstenfeld A, Zeng AZ (2004) How many suppliers are best? A decision-analysis approach. Omega 32:9–15

    Article  Google Scholar 

  • Bhutta K (2003) Supplier selection problem: methodology literature review. J Int Technol Inf Manag 12:53–71

    Google Scholar 

  • Bilsel RU, Ravindran A (2011) A multiobjective chance constrained programming model for supplier selection under uncertainty. Transp Res Part B 45:1284–1300

    Article  Google Scholar 

  • Birge JR, Louveaux F (1997) Introduction to stochastic programming. Springer, New York

    Google Scholar 

  • De Boer L, Van der Wegen L, Telgen J (1998) Outranking methods in support of supplier selection. Eur J Purch Supply Manag 4:109–118

    Article  Google Scholar 

  • De Boer L, Labro E, Morlacchi P (2001) A review of methods supporting supplier selection. Eur J Purch Supply Manag 7:75–89

    Article  Google Scholar 

  • Chien C-F (2002) A portfolio-evaluation framework for selecting R &D projects. R &D Manag 32:359–368

    Google Scholar 

  • Chien C-F (2005) Decision analysis and management, Yeh-Yeh Book Gallery, Taipei

  • Chien C-F, Sainfort F (1998) Evaluating the desirability of meals: an illustrative multiattribute decision analysis procedure to assess portfolios with interdependent items. J Multi-Criteria Decis Anal 7:230–238

    Article  Google Scholar 

  • Chien C-F, Chen C (2008) A novel timetabling algorithm for a furnace process for semiconductor fabrication with constrained waiting and frequency-based setups. OR Spectr 29(3):391–419

    Article  Google Scholar 

  • Chien C-F, Zheng J (2012) Mini-max regret strategy for robust capacity expansion decisions in semiconductor manufacturing. J Int Manu 23(6):2151–2159

    Google Scholar 

  • Chien C-F, Kuo R (2013) Beyond make-or-buy: cross-company short-term capacity backup in semiconductor industry ecosystem. Flex Ser Manu J 25(3):310–342

    Google Scholar 

  • Chien C-F, Wang H, Wang M (2007) A UNISON framework for analyzing alternative strategies of IC final testing for enhancing overall operational effectiveness. Int J Prod Econ 107(1):20–30

    Google Scholar 

  • Chien C-F, Chen Y, Peng J (2010) Manufacturing intelligence for semiconductor demand forecast based on technology diffusion and product life cycle. Int J Prod Econ 128(2):496–509

    Google Scholar 

  • Chien C-F, Wu C, Chiang Y (2012) Coordinated capacity migration and expansion planning for semiconductor manufacturing under demand uncertainties. Int J Prod Econ 135:860–869

    Article  Google Scholar 

  • Choi TY, Hartley JL (1996) An exploration of supplier selection practices across the supply chain. J Oper Manag 14:333–343

    Article  Google Scholar 

  • Chopra S, Meindl P (2012) Supply chain management: strategy, planning, and operations. 5th edn. Pearson Prentice-Hall, New Jersey

  • Clemen RT, Reilly T (2002) Making hard decisions with decision tools, 2nd edn. Duxbury Press, Belmont

    Google Scholar 

  • Degraeve Z, Labro E, Roodhooft F (2000) An evaluation of vendor selection models from a total cost of ownership perspective. Eur J Oper Res 125:34–58

    Article  Google Scholar 

  • Dickson GW (1966) An analysis of vendor selection systems and decisions. J Purch 2:5–17

    Google Scholar 

  • Faez F, Ghodsypour SH, O’Brien C (2009) Vendor selection and order allocation using an integrated fuzzy case-based reasoning and mathematical programming model. Int J Prod Econ 121:395–408

    Article  Google Scholar 

  • Fazlollahtabar H, Mahdavi I, Ashoori MT, Kaviani S, Mahdavi-Amiri N (2011) A multi-objective decision-making process of supplier selection and order allocation for multi-period scheduling in an electronic market. Int J Adv Manuf Technol 52:1039–1052

    Article  Google Scholar 

  • Gaonkar R, Viswanadham N (2007) Analytical framework for the management of risk in supply chains. IEEE Trans Autom Sci Eng 4(2):265–273

    Article  Google Scholar 

  • Ghodsypour SH, O’Brien C (1998) A decision support system for supplier selection using an integrated analytic hierarchy process and linear programming. Int J Prod Econ 56–57:199–212

    Article  Google Scholar 

  • Grunow M, Guenther HO, Yang G (2003) Plant coordination in pharmaceutics supply networks. OR Spectr 25:109–141

    Article  Google Scholar 

  • Han J, Kamber M (2001) Data mining: concepts and techniques. Morgan Kaufmann Publishers, Massachusetts

    Google Scholar 

  • He S, Chaudhry SS, Lei Z, Baohua W (2009) Stochastic vendor selection problem: chance-constrained model and genetic algorithms. Ann Oper Res 168:169–179

    Article  Google Scholar 

  • Ho W, Xu X, Dey PK (2010) Multi-criteria decision making approaches for supplier evaluation and selection: a literature review. Eur J Oper Res 202:16–24

    Article  Google Scholar 

  • iSuppli official website (2011) http://www.isuppli.com/Manufacturing-and-Pricing/MarketWatch/Pages/Outsourced-Manufacturing-Sees-Risks-This-Year-after-Finishing-with-Strong-2010.aspx. Accessed 10 January 2012

  • Kara SS (2011) Supplier selection with an integrated methodology in unknown environment. Exp Sys App 38:2133–2139

    Article  Google Scholar 

  • Keeney RL, Raiffa H (1993) Decisions with multiple objectives: preferences and value tradeoffs. Cambridge University Press, New York

    Google Scholar 

  • Kim DY, Wagner SM (2012) Supplier selection problem revisited from the perspective of product configuration. Int J Prod Res 50(11):2864–2876

    Article  Google Scholar 

  • Kull TJ, Talluri S (2008) A supply risk reduction model using integrated multicriteria decision making. IEEE Trans Eng Manag 55(3):409–419

    Article  Google Scholar 

  • Lee CY, Johnson AL (2013) Proactive data envelopment analysis: effective production and capacity expansion in stochastic environments. Eur J Oper Res. http://dx.doi.org/10.1016/j.ejor.2013.07.043

  • Lee CY, Johnson AL (2011) A decomposition of productivity change in the semiconductor manufacturing industry. Int J Prod Res 49:4761–4785

    Article  Google Scholar 

  • Lee CY, Johnson AL (2012) Two-dimensional efficiency decomposition to measure the demand effect in productivity analysis. Eur J Oper Res 216:584–593

    Article  Google Scholar 

  • Li HL, Chang CT, Tsai JF (2002) Approximately global optimization for assortment problems using piecewise linearization techniques. Eur J Oper Res 140:584–589

    Article  Google Scholar 

  • Li L, Zabinsky ZB (2011) Incorporating uncertainty into a supplier selection problem. Int J Prod Econ 134:344–356

    Article  Google Scholar 

  • Liao Z, Rittscher J (2007) A multi-objective supplier selection model under stochastic demand conditions. Int J Prod Econ 105:150–159

    Article  Google Scholar 

  • Liu H, Motoda H (1998) Feature selection for knowledge discovery and data mining. Kluwer Academic Publishers, Boston

    Book  Google Scholar 

  • Mafakheri F, Breton M, Ghoniem A (2011) Supplier selection-order allocation: a two-stage multiple criteria dynamic programming approach. Int J Prod Econ 132:52–57

    Article  Google Scholar 

  • Markowitz H (1952) Portfolio selection. J Finance 7:77–91

    Google Scholar 

  • Mendoza A, Ventura JA (2012) Analytical models for supplier selection and order quantity allocation. Appl Math Model 36:3826–3835

    Article  Google Scholar 

  • Monczka R, Trent R, Handfield R (1998) Purchasing and supply chain management. South-Western College Publishing, Cincinnati

    Google Scholar 

  • Mulvey JM, Vanderbei RJ, Zenios SA (1995) Robust optimization of large-scale systems. Oper Res 43:264–281

    Article  Google Scholar 

  • Nahmias S (2008) Production and operations analysis, 6th edn. McGraw-Hill, Irwin

  • Patton WW (1996) Use of human judgment models in industrial buyer’s vendor selection decisions. Ind Mark Manag 25:135–149

    Article  Google Scholar 

  • Petroni A, Bragia M (2000) Vendor selection using principal component analysis. J Supply Chain Manag 36:63–69

    Article  Google Scholar 

  • Quenouille M (1949) Approximation tests of correlation in time series. J Royal Stat Soc Ser B 11:18–84

    Google Scholar 

  • Ravindran AR, Bilsel RU, Wadhwa V, Yang T (2010) Risk adjusted multicriteria supplier selection models with applications. Int J Prod Res 48(2):405–424

    Article  Google Scholar 

  • Rezaei J, Davoodi M (2011) Multi-objective models for lot-sizing with supplier selection. Int J Prod Econ 130:77–86

    Article  Google Scholar 

  • Ruiz-Torres AJ, Mahmoodi F (2007) The optimal number of suppliers considering the costs of individual supplier failures. Omega 35:104–115

    Article  Google Scholar 

  • Sarkar A, Mohapatra PKJ (2009) Determining the optimal size of supply base with the consideration of risks of supply disruptions. Int J Prod Econ 119:122–135

    Article  Google Scholar 

  • Sarkis J, Talluri S (2002) A model for strategic supplier selection. J Supply Chain Manag 38:18–28

    Article  Google Scholar 

  • Sharpe WF (1966) Mutual fund performance. J Bus 39:119–138

    Article  Google Scholar 

  • Sharpe WF (1971) A linear programming approximation for the general portfolio analysis. J Financial Quant Anal 6:1263–1275

    Article  Google Scholar 

  • Simchi-Levi D, Kaminsky P, Simchi-Levi E (2007) Designing and managing the supply chain: concepts, strategies, and cases, 3rd edn. McGraw-Hill, New York

  • Stadtler H (2007) A general quantity discount and supplier selection mixed integer programming model. OR Spectr 29:723–744

    Article  Google Scholar 

  • Stamm CL, Golhar DY (1993) JIT purchasing: attribute classification and literature review. Prod Plan Control 4:273–282

    Article  Google Scholar 

  • Stone B (1973) A linear programming formulation of the general portfolio selection model. J Financial Quant Anal 8:621–636

    Article  Google Scholar 

  • Talluri S, Narasimhan R (2004) A methodology for strategic sourcing. Eur J Oper Res 154:236–250

    Article  Google Scholar 

  • Tsai JF (2007) An optimization approach for supply chain management models with quantity discount policy. Eur J Oper Res 177:982–994

    Article  Google Scholar 

  • Tukey JW (1958) Bias and confidence in not quite large samples. Ann Math Stat 29:614

    Article  Google Scholar 

  • Wang HF, Kuo CY (2004) Factor analysis in data mining. Comput Math Appl 48:1765–1778

    Article  Google Scholar 

  • Weber CA, Current JR, Benton WC (1991) Vendor selection criteria and methods. Eur J Oper Res 50:1–17

    Article  Google Scholar 

  • Weber CA (1996) A data envelopment analysis approach to measuring vendor performance. Supply Chain Manag 1:28–39

    Article  Google Scholar 

  • Weber CA, Current J, Desai A (2000) An optimization approach to determining the number of vendors to employ. Supply Chain Manag Int J 5:90–98

    Article  Google Scholar 

  • Wu J, Chien C-F (2008) Modeling strategic semiconductor assembly outsourcing decisions based on empirical settings. OR Spectr 30(3):401–430

    Article  Google Scholar 

  • Wu DD, Zhang Y, Wu D, Olson DL (2010) Fuzzy multi-objective programming for supplier selection and risk modeling: a possibility approach. Eur J Oper Res 200:774–787

    Article  Google Scholar 

  • Wu J, Chien C-F, Gen M (2012) Coordinating strategic outsourcing decisions for semiconductor assembly using a bi-objective genetic algorithm. Int J Prod Res 50(1):235–260

    Article  Google Scholar 

  • Xu N, Nozick L (2009) Modeling supplier selection and the use of option contracts for global supply chain design. Comp Oper Res 36:2786–2800

    Article  Google Scholar 

  • Zeleny M (1982) Multiple criteria decision making. McGraw Hill, New York

    Google Scholar 

  • Zhang Z, Lei J, Cao N, To K, Ng K (2004) Evolution of supplier selection criteria and methods. In: Proceedings of the second globelics conference innovation systems and Development, Emerging Opportunities and Challenges, The Hong Kong Polytech University

  • Zhou Y, Zhao L, Zhao X, Jiang J (2011) A supplier selection and order allocation problem with stochastic demands. Int J Sys Sci 42:1323–1338

    Article  Google Scholar 

Download references

Acknowledgments

This research was supported by the National Science Council, Taiwan (NSC99-2221-E-007-047-MY3; NSC 102-2622-E-007-013), the Ministry of Education, Taiwan (101N2073E1), and Hsinchu Science Park, Taiwan (101A53).

Author information

Authors and Affiliations

  1. Institute of Manufacturing Information and Systems, National Cheng Kung University, Tainan, 701, Taiwan

    Chia-Yen Lee

  2. Department of Industrial Engineering and Engineering Management, National Tsing Hua University, 101 Section 2 Kuang Fu Road, Hsinchu, 30013, Taiwan

    Chen-Fu Chien

Authors
  1. Chia-Yen Lee
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Chen-Fu Chien
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Chen-Fu Chien.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Lee, CY., Chien, CF. Stochastic programming for vendor portfolio selection and order allocation under delivery uncertainty. OR Spectrum 36, 761–797 (2014). https://doi.org/10.1007/s00291-013-0342-7

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s00291-013-0342-7

Keywords

Search

Navigation