Supplier ratings and dynamic sourcing strategies to mitigate supply disruption risks

Preetam Basu (), Soumita Ghosh () and Milan Kumar ()
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Preetam Basu: Indian Institute of Management Calcutta
Soumita Ghosh: Xavier School of Management (XLRI)
Milan Kumar: Indian Institute of Management Visakhapatnam

DECISION: Official Journal of the Indian Institute of Management Calcutta, 2019, vol. 46, issue 1, No 6, 57 pages

Abstract: Abstract The selection of a sourcing strategy plays a vital role in managing supply disruptions. The choice regarding the number of suppliers is one of the most important decisions in mitigating supply side risks. In this paper, we analyze single versus dual sourcing strategies of a buying organization in a multi-period setting where the low-cost supplier is exposed to disruption risks. We incorporate supplier ratings based on the performance of the suppliers in a dynamic setting and use them in the sourcing decisions. We develop a stochastic dynamic programming model to formulate the dual-sourcing problem. Our results show that dual sourcing provides maximum cost–benefit under high probability of supply disruption and high-cost differential between the reliable and the unreliable suppliers. The findings of this paper will help supply chain managers formulate optimal sourcing strategies when exposed to supply disruption risks by integrating performance metrics of the suppliers dynamically.

Keywords: Sourcing strategies; Dual sourcing; Supply chain risk management; Vendor rating; Stochastic dynamic programming (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1007/s40622-019-00204-x

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