A dynamic model for strategic supplier selection

Abstract

Supplier selection decisions at the strategic level are focused on strategic items with both a high supply risk and a high profit impact. Therefore, strategic supplier selection decisions have to be long-term orientated considering (i) mutual commitments between the partners involved, (ii) fixed costs upon selection of a new supplier in the form of investment in training, and technology, as well as (iii) significant costs of switching from one supplier to another. Existing approaches of supplier selection neglect the interdependencies in time arising from investment costs of selecting a new supplier and costs of switching from one supplier to another. Moreover, it is assumed that the set of employed suppliers can be changed each period without cost. These shortcomings of current approaches motivates the research presented in this paper. A stochastic dynamic model for supplier selection based on hierarchical planning approaches will be presented. This model enables the evaluation of alternative dynamic supplier selection strategies.