Supplier Replacement Model in a One-Level Assembly System under Lead-Time Uncertainty

Abstract

Supplier selection/replacement strategies, purchasing price negotiation and optimized replenishment policies play a key role in efficient supply chain management in today’s dynamic market. Their importance increases even more in Industry 4.0. In this paper, we propose a joint model of replenishment planning and purchasing price negotiation in the context of supplier replacement in a one-level assembly system (OLAS) producing one type of finished product. The real component lead times are stochastic. There is consequently a non-negligible risk that the assembly process may be stopped if all components for assembly are not delivered on the due date. This incurs inventory-related costs, holding and backlogging, which should be minimized. We consider a set of suppliers characterized by their prices and the probability distributions of their lead-times, and we present a model and an approach that optimize not only replenishment policy, but also purchasing prices. For a given unit, it is possible to model several alternative suppliers with alternative pricing and lead-time uncertainties, and evaluate their impacts on the total cost: composed of holding, backlogging and purchasing costs for the assembly system. The findings of this study indicate that it can be beneficial to pay suppliers an additional purchase cost in order to reduce the holding and backlogging costs related to uncertainty. In consequence, decision makers can use the proposed approach to negotiate prices and delivery delays or to select suppliers.