Mixed integer linear programming model for dynamic supplier selection problem considering discounts

MATEC Web of Conferences, Jan 2018

Supplier selection is one of the most important elements in supply chain management. This function involves evaluation of many factors such as, material costs, transportation costs, quality, delays, supplier capacity, storage capacity and others. Each of these factors varies with time, therefore, supplier identified for one period is not necessarily be same for the next period to supply the same product. So, mixed integer linear programming (MILP) was developed to overcome the dynamic supplier selection problem (DSSP). In this paper, a mixed integer linear programming model is built to solve the lot-sizing problem with multiple suppliers, multiple periods, multiple products and quantity discounts. The buyer has to make a decision for some products which will be supplied by some suppliers for some periods cosidering by discount. To validate the MILP model with randomly generated data. The model is solved by Lingo 16.

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Mixed integer linear programming model for dynamic supplier selection problem considering discounts

MATEC Web of Conferences Mixed integer linear programming model for dynamic supplier selection problem considering discounts Purnawan Adi Wicaksono 2 I Nyoman Pujawan 1 Erwin Widodo 1 Sutrisno 0 Laila Izzatunnisa 2 0 Department of Mathematics, Diponegoro University , Semarang 50275 Indonesia 1 Department of Industrial Engineering, Sepuluh Nopember Institute of Technology , Surabaya 60111 Indonesia 2 Department of Industrial Engineering Diponegoro University , Semarang 50275 Indonesia Supplier selection is one of the most important elements in supply chain management. This function involves evaluation of many factors such as, material costs, transportation costs, quality, delays, supplier capacity, storage capacity and others. Each of these factors varies with time, therefore, supplier identified for one period is not necessarily be same for the next period to supply the same product. So, mixed integer linear programming (MILP) was developed to overcome the dynamic supplier selection problem (DSSP). In this paper, a mixed integer linear programming model is built to solve the lot-sizing problem with multiple suppliers, multiple periods, multiple products and quantity discounts. The buyer has to make a decision for some products which will be supplied by some suppliers for some periods cosidering by discount. To validate the MILP model with randomly generated data. The model is solved by Lingo 16. 1 Introduction In a highly competitive industry today, firms must realize the importance of supplier selection that meet the required quality and time. Firms are now facing increased consumer demand, shorter product life cycles, and sharper price cuts. This condition causes firms to cut costs and improve supply chain. Supply chain improvements become critical in rising the competitiveness of the firm. It can be done through supplier selection process (Sagar, 2012) . Fluctuative and dynamic demand make it difficult for firms to determine the order quantity and and when the order must be made to fulfill the demand and minimize the inventory costs. Suppliers are also expected to be dynamic as well. This can happen because a firm usually has a demand regarding supplier capacity, quality level, lead time, unit cost part, and time-varied fixed transportation cost. (Ware et al., 2014) . Supplier selection problems are usually classified in terms of multi-echelon, multi-product, multi-supplier and the time period’s nature (Lin & Lei, 2009) . Firm’s requests always fluctuate so that time value requirements are considered dynamic, not with short or long-term agreements. Therefore, this paper will discuss Dynamic Supplier Selection Problem (DSSP). In DSSP which a set of suppliers is selected supplier for each period. (Ware et al., 2014) . Most of the models that have been developed for supplier selection problems ignore transportation elements that significantly impact the total procurement costs. (Wicaksono et al., 2016) . However, there are already some researchers who consider transportation costs in the selection of single product suppliers such as (Burke et al., 2007; Liao & Rittscher, 2007; Aguezzoul, A., & Ladet, 2007; Choudhary & Shankar, 2011; Choudhary & Shankar, 2013) . Some researchers are choosing suppliers with multi-period, multi-product and multi-supplier (Rezaei & Davoodi, 2011; Ware et al., 2014; Wicaksono et al., 2016) . In another case, the supplier provides discounts for each purchase in large quantities to increase sales of a product goods / services. With discounts, buyers may be interested to buy a product. In practice, ordering in large amount with far distance can reduce transportation costs per unit (Shinn et al., 1996) . Therefore, this study will develop a model that integrates procurement decisions with transportation costs and discounts. To minimize procurement expenditures, purchasing and transportation costs need to be considered. Suppliers offer total cost discount and transportation costs based on trucking rates. The goal is to select several suppliers in fulfilling the demand of the product with a minimum total cost. In this paper, the researcher will make a model to solve supplier selection problem with multi-period, multiproduct and multi-supplier condition based on the development of the previous model (Ware et al., 2014) with discount consideration. The method used is Mixed Integer Linear Programming (MILP). Random data used for model validation. This model then solved using LINGO 16 software. Furthermore, in part 2 of this paper, a brief literature review of models or techniques related to the dynamic supplier selection will be presented. Section 3 will present the model and its mathematical formulation. Section 4 will present a case study to test the proposed model. Finally, section 5 will provide conclusions and suggestions for further research. 2 Literature Review In supplier selection, there are two categories: quantitative model and qualitative model. Q (...truncated)


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Purnawan Adi Wicaksono, I Nyoman Pujawan, Erwin Widodo, , Laila Izzatunnisa. Mixed integer linear programming model for dynamic supplier selection problem considering discounts, MATEC Web of Conferences, 2018, 154, DOI: 10.1051/matecconf/201815401071