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Supplier ratings and dynamic sourcing strategies to mitigate supply disruption risks

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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.

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Notes

  1. Building Resilience in Supply Chains, January 2013.

  2. Uncovering Chronic Disruption In Supply Chain And Operations Management, 2014.

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Author information

Authors and Affiliations

  1. Indian Institute of Management Calcutta, Diamond Harbour Road, Kolkata, West Bengal, 700 104, India

    Preetam Basu

  2. Xavier School of Management (XLRI), Jamshedpur, Jharkhand, 831001, India

    Soumita Ghosh

  3. Indian Institute of Management Visakhapatnam, Andhra University Campus, Chinna Waltair Road, Visakhapatnam, AP, 530003, India

    Milan Kumar

Authors
  1. Preetam Basu
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  2. Soumita Ghosh
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  3. Milan Kumar
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Correspondence to Preetam Basu.

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Appendix

Appendix

Transition matrixes

 

Transition matrix: technical capacity

Very high

High

Medium

Low

Very low

Very high

0.3

0.2

0.2

0.15

0.15

High

0.2

0.3

0.2

0.15

0.15

Medium

0.15

0.2

0.3

0.2

0.15

Low

0.15

0.15

0.2

0.3

0.2

Very low

0.15

0.15

0.2

0.2

0.2

 

Transition matrix: reliability

Very high

High

Medium

Low

Very low

Very high

0.3

0.2

0.2

0.15

0.15

High

0.2

0.3

0.2

0.15

0.15

Medium

0.15

0.2

0.3

0.2

0.15

Low

0.15

0.15

0.2

0.3

0.2

Very low

0.15

0.15

0.2

0.2

0.2

Effective yield

 

Technical capability

 

Very high

High

Medium

Low

Very low

Reliability

Very high

90%

80%

70%

40%

20%

High

80%

65%

55%

30%

15%

Medium

70%

55%

45%

25%

10%

Low

40%

30%

25%

20%

8%

Very low

20%

15%

10%

8%

5%

Transition matrix: Variance “High”

Transition matrix: reliability

 

High

Med

Low

High

0.4

0.3

0.3

Med

0.3

0.4

0.3

Low

0.3

0.3

0.4

Transition matrix: technical capability

 

High

Med

Low

High

0.4

0.3

0.3

Med

0.3

0.4

0.3

Low

0.3

0.3

0.4

Transition matrix: Variance “Low”

Transition matrix: reliability

 

High

Med

Low

High

0.8

0.1

0.1

Med

0.1

0.8

0.1

Low

0.1

0.1

0.8

Transition matrix: technical capability

 

High

Med

Low

High

0.8

0.1

0.1

Med

0.1

0.8

0.1

Low

0.1

0.1

0.8

Effective yield

 

Technical capability

High

Med

Low

Reliability

High

90%

80%

40%

Med

80%

70%

30%

Low

40%

35%

20%

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Basu, P., Ghosh, S. & Kumar, M. Supplier ratings and dynamic sourcing strategies to mitigate supply disruption risks. Decision 46, 41–57 (2019). https://doi.org/10.1007/s40622-019-00204-x

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