A stochastic programming model with endogenous uncertainty for selecting supplier development programs to proactively mitigate supplier risk

Rui Zhou, Tanveer Hossain Bhuiyan, Hugh R. Medal, Michael D. Sherwin and Dong Yang

Omega, 2022, vol. 107, issue C

Abstract: Poor supplier performance can result in delays that disrupt manufacturing operations. By proactively managing supplier performance, the likelihood and severity of supplier risk can be minimized. In this paper, we study the problem of selecting optimal supplier development programs (SDPs) to improve suppliers’ performance with a limited budget to proactively reduce supplier risks for a manufacturer. A key feature of our research is that it incorporates the uncertainty in supplier performance in response to SDPs selection decisions. This uncertainty is endogenous (decision-dependent), as the probability of supplier performance depends on the selection of SDPs, which introduces modeling and algorithmic challenges. We formulate this problem as a two-stage stochastic program with decision-dependent uncertainty. We implement a sample-based greedy algorithm and an accelerated Benders’ decomposition method to solve the developed model. We evaluate our methodology using the numerical cases of four low-volume, high-value manufacturing firms. The results provide insights into the effects of the budget amount and of the number of SDPs on the firm’s expected profit. Numerical experiments demonstrate that an increase in budget results in profit growth, e.g., 5.09% profit growth for one firm. At a lower budget level, increasing the number of available SDPs results in more profit growth. The results also demonstrate the significance of considering uncertainty in supplier performance and considering multiple supplier risks for the firm. In addition, computational experiments demonstrate that our algorithms, especially our greedy approximation algorithm, can solve large-sized problems in a reasonable time.

Keywords: Supplier risk mitigation; Stochastic programming; Supplier development program; Benders’ decomposition; Greedy algorithm (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0305048321001511
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jomega:v:107:y:2022:i:c:s0305048321001511

Ordering information: This journal article can be ordered from
http://www.elsevier.com/wps/find/supportfaq.cws_home/regional
https://shop.elsevie ... _01_ooc_1&version=01

DOI: 10.1016/j.omega.2021.102542

Access Statistics for this article

Omega is currently edited by B. Lev

More articles in Omega from Elsevier
Bibliographic data for series maintained by Catherine Liu ().