An effective method to supplier selection and order quantity allocation

Abstract

For those companies where the number of potential suppliers is large, the procurement decision process becomes increasingly complicated. In response to this, we present a two-phase method that effectively integrates supplier selection and order quantity allocation. Firstly, a list of potential suppliers is ranked and reduced (prescreening phase) to a manageable number by applying the Analytic Hierarchy Process (AHP). Then, based on the reduced list of suppliers, a mathematical model is used to properly allocate order quantities (order quantity allocation phase) while minimising the ordering, holding and purchasing costs per time unit subject to suppliers' capacity and quality constraints.