Optimal order allocation with two suppliers on the basis of supplier performance

Abstract

In real-world, buyer faces lots of uncertainty, especially in the order allocation problem. Our interest exists in finding an optimal order allocation based on uncertainty concerning supplier``s performance. This paper suggests a way formulating an order allocation model related to supplier``s performance when two suppliers exist. The supplier``s overall performance can be gauaged by his unit product price, the adherence to quality standards and delivery schedule. The cost of substandard quality and non-adherence to delivery schedule are estimated and added to the purchasing cost in this model to be developed. These results are also illustrated by an example.