1 s2.0 S0305054806000153 Main

Computers & Operations Research 34 (2007) 3516 3540
www.elsevier.com/locate/cor
Supplier selection and order lot sizing modeling: A review

Najla Aissaouia , Mohamed Haouaria, , Elka Hassinib
a Combinatorial Optimization Research Group-ROI, Ecole Polytechnique de Tunisie, BP 743, 2078, La Marsa, Tunisia
b DeGroote School of Business, McMaster University, 1280 Main St. West, Hamilton, ON, Canada L8S 4M4
Available online 9 March 2006
Abstract
With globalization and the emergence of the extended enterprise of interdependent organizations, there has been a steady increase
in the outsourcing of parts and services. This has led rms to give more importance to the purchasing function and its associated
decisions. One of those decisions which impacts all rmsareas is the supplier selection. Since the 1950s, several works have addressed
this decision by treating different aspects and instances. In this paper, we extend previous survey papers by presenting a literature
review that covers the entire purchasing process, considers both parts and services outsourcing activities, and covers internet-based
procurement environments such as electronic marketplaces auctions. In view of its complexity, we will focus especially on the nal
selection stage that consists of determining the best mixture of vendors and allocating orders among them so as to satisfy different
purchasing requirements. In addition, we will concentrate mainly on works that employ operations research and computational
models. Thereby, we will analyze and expose the main decisions features, and propose different classications of the published
models.
2006 Elsevier Ltd. All rights reserved.
Keywords: Purchasing; Outsourcing; Supplier selection; Order sizing; Decision models; Auctions
1. Introduction
In todays erce competitive environment, characterized by thin prot margins, high consumer expectations for
quality products and short lead-times, companies are forced to take advantage of any opportunity to optimize their
business processes. To reach this aim, academics and practitioners have come to the same conclusion: for a company to
remain competitive, it has to work with its supply chain partners to improve the chains total performance. Thus, being
the main process in the upstream chain and affecting all areas of an organization, the purchasing function is taking an
increasing importance.
1.1. The major purchasing decision processes
There are six major purchasing decision processes: (1) make or buy, (2) supplier selection, (3) contract negotiation,
(4) design collaboration, (5) procurement, and (6) sourcing analysis, as shown in Fig. 1.
In the make or buy decision process (1), depending on whether the part/service is a nished/semi-nished good
or not, a company would decide on whether a certain part or service should be produced internally or outsourced.
Corresponding author.
E-mail addresses: aissnaj@yahoo.fr (N. Aissaoui), mohamed.haouari@ept.rnu.tn (M. Haouari), hassini@mcmaster.ca (E. Hassini).
0305-0548/$ - see front matter 2006 Elsevier Ltd. All rights reserved.
doi:10.1016/j.cor.2006.01.016
N. Aissaoui et al. / Computers & Operations Research 34 (2007) 3516 3540
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Type of part/service
Raw material
Finished/semi-finished
1
1
Own source
Outsource
Purchase
Make
Supplier selection
2
Contract negotiation
3
Design collaboration
4
Procurement
5
6
Sourcing analysis
Fig. 1. Major purchasing processes.
In Fig. 1, we reserve the term outsourcing for the case when a nished/semi-nished part or service is being procured
and the term purchasing for the case when a raw material is being procured. That is, the distinguishing factor between
a purchased and an outsourced item is that in the latter the supplier undertakes processes that add value to the item.
The analysis at this stage would typically look at the economics of the part or service (i.e., is it cheaper to produce
internally?) as well as its strategic importance (i.e., is it a core product or service?). In this survey, we assume that the
company has already determined that the part or service is both benecial and strategically appealing to outsource or
purchase. Thus, the papers included in this review consider only decision processes [15] and the question of whether
the part is being outsourced or purchased is immaterial to the models therein. Therefore, to be consistent with most of
the literature on procurement, in the sequel, we use the terms purchasing and outsourcing interchangeably.
In the supplier selection process (2), a pool of suppliers is chosen for procurement according to a predened set of
criteria. A good proportion of the studies surveyed in this paper focus on this decision process. The problem of designing
a suitable contract is the subject of the contract negotiation process (3). Although, recently there is an increasing interest
in the subject of contract design for supply chain coordination, there is only a small number of papers that have focused
on procurement contracts (e.g., see [1] for a discussion of when it is appropriate to use a short- or long-term procurement
contract). A related decision process is that of design collaboration (4). At this stage the procurer and supplier work
closely to design parts/services that meet quality standards and customer specications. Here also, we found only a
small number of studies that consider design collaboration criteria in supplier selection models (e.g., see [2] for a model
that addresses the issue of achieving quality standards by concurrent tolerance design and supplier selection).
The procurement decision process (5) is concerned with the problem of guaranteeing that the suppliers would deliver
the part/service in time and with minimum costs. Supplier selection papers that address lot sizing and other inventory
related issues fall under this category. Finally, in the sourcing analysis (6) stage, a company would try to assess the
overall efciency of its procurement process. Here, issues like assortments (ordering a group of parts/services from
a single supplier), consolidation (shipping orders from more than one supplier together), and supplier performance
measurements would be considered.
Typically, it is only decision processes (2), (5), and (6) that are under the complete responsibility of the purchasing
department. For the remaining processes at least one other department, if not another company, would be involved:
marketing and strategic planning (top management) for (1), strategic planning and suppliers sales department for (3)
and engineering departments of both the company and its suppliers for (4). Consistent with the purchasing departments
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major responsibilities, we found that the majority of the analytical studies on outsourcing decisions focus on processes
(2), (5), and (6). In the future we expect that more procurement studies will focus on decisions that span more than one
company.
Efcient management of the purchasing processes is particularly crucial for industries where outsourcing costs
constitute a signicant portion of their operating costs (e.g., hi-tech industry where outsourced services and parts
account for more than 80% of cost of nished goods [3]). Recent data about manufacturing outsourcing activities
(often called contract manufacturing) can only conrm this trend: the contract manufacturing industry is estimated to
be worth $120 billion in 2001 and has been the fastest growing sector among manufacturing industries, with a yearly
growth rate of more than 80% between 1996 and 2000. It is expected that 50% of manufacturing activities will be
outsourced by 2010 [4, p. 24].
1.2. Overview of the purchasing literature
Overall, there are two salient viewpoints in the literature:
The most important purchasing decision is undoubtedly selecting and maintaining close relationships with a few,
albeit reliable and high-quality vendors, in order to reduce product costs while maintaining excellent product quality
and customer services (e.g., [58]).
There is a strong need for a systematic approach to purchasing decision making especially in the area of identifying
appropriate suppliers and assigning orders among them (see e.g., [912]).
The Supplier Selection Problem (also called Vendor Selection Problem, used interchangeably in this paper) captures
the essential characteristics of the above decisions. Apart from limited number of studies that consider purchasing
services and contracts (e.g., studies by Degraeve et al. [13], Oliveira and Loureno [14]), the vast majority of published
works deal with the procurement of materials, particularly by industrial rms.
A synthesis of the purchasing literature reveals that there are three major decisions that are related to the supplier
selection problem:
What product to order? Up to half of the papers we surveyed are for situations in which vendors are selected for
only one product. In such cases, various interdependencies that could exist among the different products are not
taken into account. For instance, a supplier can be offering a large discount based on total sales volume, irrespective
of the product mix. Order costs could also be minimized by combining orders for several products into one single
order. Finally, quality audits for different products might be executed simultaneously. Only few models consider
purchasing simultaneously a set of products. Furthermore, many multiple-products vendor selection models handle
the problem on an item-by-item basis and have to be applied iteratively to select suppliers for multiple items.
In what quantities and from which supplier(s)? Basically, there are two kinds of purchasing situations: single or
multiple sourcing. With the rst alternative, all the suppliers can fully meet the buyers requests in terms of quantity,
quality, delivery, etc. Consequently, the only decision concerns the identication of the best supplier. Regarding
the second alternative, it is adopted either when none of the suppliers is able to satisfy the buyers total demands (due
to limitations on suppliers capacity, quality, delivery, price, etc.) or when procurement strategies aim at avoiding
dependency on a single source to protect from shortages and maintaining steady competition among suppliers. In
these circumstances, the problem is twofold: vendor selection and order quantity allocation.
In which periods? Inventory lot-sizing and supplier choice are closely interrelated. Incorporating the decision to
schedule orders over time with the vendor selection may signicantly reduce costs over the planning horizon. By
considering a multi-period horizon, one or more suppliers could be selected in each of these periods for the purchase
of products. Alternatively, products could be carried forward to a future period, incurring holding costs. The economic
ordering quantity (EOQ) concept could also be introduced into procurement lot-sizing decisions to incur the least total
cost possible in a supplier selection and procurement lot sizing process. Nevertheless, in spite of those advantages,
the majority of models that have been proposed up to now treat vendor selection without considering multi-period
inventory management issues.
The problem of selecting suitable suppliers is not new and a great number of conceptual and empirical works have
been published. In fact, before supply chain management became a buzzword, numerous publications have already
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addressed vendor selection issues. First related papers can be traced back to the 1950s when applications of linear
programming and scientic computations were at their beginning. The rst recorded supplier selection model is that
used by the National Bureau of Standards in the United States of America to nd the minimum cost way for awarding
procurement contracts in the Department of Defense [1517]. It is worthwhile mentioning that none of the previous
literature reviews have mentioned these studies and other related works around that period of time. The existent literature
surveys focuses on papers starting from the mid 1960s. The earliest review is by Moore and Fearon [18] where they
focus on industry applications of computer-assisted supplier selection models. Many other interesting surveys in this
area followed thereafter:
Kingsman [19] highlights the inadequacy of classical inventory management models for tackling purchasing decisions
and describes some of the major models that were used for the different purchasing decision making stages.
Holt [20] reviewed and compared several decisional methods applied in contractor evaluation and selection.
Weber et al. [9] annotate and classify 74 articles with regard to the particular criteria mentioned in the study, the
purchasing environment and the decision technique used.
Degraeve et al. [21] presented some published supplier selection models as well and compared their relative efciency
using the total cost of ownership approach using a real life data set.
Unlike in previous survey papers, De Boer et al. [22] did not restrict the review to the nal choice models. The
authors recognized the prior steps to the ultimate stage and presented the main published works that deal with all
the supplier selection process.
Motivated by the above discussion, the purpose of this paper is to extend and update previous reviews. Similar to that
of De Boer et al. [22], our study deals with the entire selection process. Nevertheless, in view of its complexity, we focus
more on the nal selection stage especially in multiple sourcing contexts. In addition, we will concentrate mainly on
works that employ operations research and computational models. Contrary to the existing reviews that only describe
briey the published works, we propose a complete analysis of the various dimensions and characteristics of related
literature and provide different classications. Finally, our work stands previous studies by considering both parts and
services outsourcing activities and covering internet-based procurement environments such as electronic marketplaces
auctions.
The present paper is organized as follows. In Section 2, we describe the whole selection process giving a fair picture of
the variety of approaches available to support the nal choices prior steps. In Section 3, basing on an extensive survey of
the purchasing literature, we analyze and classify published nal selection models in both single and multiple sourcing
contexts. Supplier selection models for service industries and recent developments in the internet-based procurement
environments will be described in Sections 4 and 5. Finally, several conclusions will be drawn in Section 6.
2. The vendor selection process: different stages and characteristics

As reported by De Boer et al. [22], several decision-making steps make up the vendor selection process: at rst, a
preparation step is achieved by formulating the problem and the different decision criteria. After that, prequalication of
potential suppliers and nal choices are successively elaborated. De Boer et al. [22,23] present an interesting overview
of the literature on supplier selection models. It species the published works treating every stage of the selection
process for every purchasing situation.
In this section, we expose in a general way, the main objectives and features of each process step.
2.1. Problem denition
Due to shortened product life cycles, the search for new suppliers is a continuous priority for companies in order
to upgrade the variety and typology of their products range. On the other hand, purchasing environments such as
Just-In-Time, involve establishing close connections with suppliers leading to the concept of partnership, privileged
suppliers, long-term agreement, etc. Thereby, decision makers are facing different purchasing situations that lead to
different decisions. Consequently, in order to make the right choice, the purchasing process should start with nding
out exactly what we want to achieve by selecting a supplier.
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In general, the majority of decision tools for problem denition are qualitative methods that assist decision-makers
in order to carefully identify the need for a decision and the alternatives that seem to be available.
2.2. Decision criteria formulation
Depending on the purchasing situation, selecting the right suppliers is inuenced by a variety of factors. This
additional complexity is essentially due to the multi-criteria nature of this decision. The analysis of this aspect has been
the focus of multiple papers since the 1960s. Cardozo and Cagley [24], Monczka et al. [25], Moriarity [26], Woodside
and Vyas [27], Chapman and Carter [28], Tullous and Munson [29] propose diverse empirical researches emphasizing
the relative importance of different supplier attributes. Among works that are a reference for the majority of papers we
distinguish Dicksons study [30]. Based on a questionnaire sent to 273 purchasing agent and managers from United
States and Canada, it identied 23 different criteria evaluated in vendor selection. Among these, the price, delivery, and
quality objectives of the buyer, as well as the abilities of the vendors to meet those objectives, are particularly important
factors in deciding how much to order from the available vendors. In the same way, Weber et al. [9] observed that price,
delivery, quality, production capacity and localization are the criteria most often treated in the literature. Although the
evolution of the industrial environment modied the degrees of the relative importance of supplier selection criteria
since the 1960s, the 23 ones presented by Dickson still cover the majority of those presented in the literature until today.
A series of experimental studies was conducted by Verma and Pullman [31] to examine how managers effectively
choose suppliers. The empirical results reveal that they perceive quality to be the most important attribute in the selection
process. Nevertheless, the same sample of managers assign more weight to cost and delivery performance than quality
when actually choosing a supplier. Cusumano and Takeishi [32] note as well that the choice of criteria may differ from
one culture to another.
Generally, two basic types of criteria are dealt with when deciding which suppliers to select: objective and subjective
ones. These former can be measured by a concrete quantitative dimension like cost whereas the latter cannot be like
the quality of design. Another factor complicating the decision is that some criteria may conict each other. Wind and
Robinson [33] identied possible contradictions such as the vendor offering the lowest price may not have the best
quality, or the vendor with the best quality may not deliver on time. As a result, it is necessary to make a trade-off
between conicting tangible and intangible factors to nd the best suppliers. Observe that in compensatory models, a
poor performance on one criterion (generally represented by a score) can be compensated by a high performance in
another one whereas in non-compensatory models, different minimum levels for each criterion are required.
Regarding available methods, there is a lack in the purchasing literature for the formulation of criteria and their
qualication. As for the previous phase, it consists essentially of applying qualitative methods that include tools for
visualizing and analyzing the decision-makers perception of a problem situation and tools for brainstorming about
possible alternative solutions. In the survey proposed by De Boer et al. [22], only two applications are mentioned and
some operational research methods such as Rough Sets Theory [34,35], and Value Focused Thinking [36] are proposed
as suitable alternatives for criteria identication and selection.
Regardless of the method used, supplier selection criteria formulation affects several activities including inventory
management, production planning and control, cash ow requirements, product/service quality [37]. Therefore such
decision must be made under the consensus of a multidisciplinary group of decision makers with various points of view
and representing the different services of the company [3840].
2.3. Pre-selection of potential suppliers
Todays co-operative logistics environment requires a low number of suppliers as it is very difcult to manage a high
number. Therefore, the purpose of this processs stage is to rule out the inefcient candidates and reduce the set of all
suppliers to a small range of acceptable ones.
Among the existing alternatives, it is possible to use an elimination method which excludes suppliers that do not
satisfy the selection rule. With a conjunctive rule, we eliminate the suppliers whose mark, with respect to a criterion,
is lower than the minimal threshold already xed [41]. This is justied by the fact that if a supplier cannot satisfy
a minimal threshold compared to a certain criterion, it cannot be selected in spite of its possible effectiveness with
respect to other criteria because of intolerable possible consequences on quality or other constraints or objectives of
the company.
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In a lexicographic rule [42], on a rst level, the most signicant criterion is identied. Then, we compare suppliers
with respect to this criterion. If a supplier satises it much better than the other suppliers then it is chosen, if not, we
compare the suppliers with respect to the second criterion, and so on.
Timmerman [43] proposes a categorical method to sort suppliers into three classes by considering historical data. It is
a simple and inexpensive qualitative rating model that requires a minimum of performance data. It consists of evaluating
and categorizing suppliers performance on each criterion as either good (+), neutral (0) or unsatisfactory () and
combining them into a total rating. However, such method is very sensitive to changes in ratings and depends heavily
on human judgment. It also weights the criteria equally, which rarely happens in practice. In view of those limitations,
such method is inadequate to the nal choice phase.
Likewise, as reported rst by Hinkle et al. [44] and later by Holt [20], using a classication algorithm, cluster analysis
(CA) allows classifying suppliers described by a set of numerical attribute scores in groups of comparable suppliers.
In this way, the difference between suppliers performance within a cluster are minimal whereas it is maximal between
different clusters. Holt [20] contends that CA offers greatest potential for pre-qualifying all suppliers. That is, CA
reduces the probability of rejecting a good supplier too early in the process via subjective reduction of the often large
original set. CA would enlarge the scope for rationalization of the selection process by identifying the criteria involved.
Another method that aids decision makers in classifying the suppliers or their bids into a group of efcient suppliers
and a group of inefcient ones is the data envelopment analysis (DEA). Due to its usefulness in evaluating multi-criterion
systems and providing improvement targets, this method has been widely applied to address various decision analysis
problems. DEA is a mathematical programming technique that calculates the relative efciencies (ration of weighted
outputs (benet criteria) to weighted inputs (cost criteria)) of multiple decision making units. Its use in supplier selection
was primarily discussed by Weber and Ellram [45]. Weber and Desai [46] applied a combination of DEA and parallel
coordinates representation to evaluate the performance of vendors and develop negotiation strategies with inefcient
ones. Dealing with the procurement of an individual product under multiple criteria, the authors had also shown the
advantages of applying DEA to such a system. Later, Liu et al. [47] extended Weber and Desais research using DEA
in supplier evaluation for an individual product.
Talluri and Narasimhan [48] stated that multi-factor vendor evaluation methods such as DEA have primarily relied
on evaluating vendors based on their strengths and failed to incorporate their weaknesses into the selection process.
They also added that such approaches would not be able to effectively differentiate between vendors with comparable
strengths but signicantly different weaknesses. Consequently, the authors proposed an approach based on minmax
productivity methods that estimates vendor performance variability measures, which are then used in a non-parametric
statistical technique in identifying homogeneous vendor groups for effective selection. In this way, buyers are provided
with effective alternative choices within a vendor group. This allows the buyer to base the nal decision on other
intangible factors that could not be incorporated into the analysis.
2.4. Final selection
Being the emergent part of the buying process, most of the publications in the area of supplier selection have focused
on determining the best mixture of vendors to supply all needed items. Therefore, at this stage, the ultimate supplier(s)
are identied and orders are allocated among them while considering the systems constraints and taking into account
a multitude of quantitative and/or qualitative criteria.
The research survey reveals that great attention has been paid to develop effective vendor selection models. In the
remainder of this paper, we will cover in detail the state-of-the-art decision models available at present.
3. Decision models for the nal choice phase: Review of the existing literature
As stated earlier, the vast majority of the decision models existing in literature concern the nal choice phase of
the buying process. To classify them, a rst distinction can be made by considering the second decision related to
the supplier selection problem that is to say adopting sole-sourcing where the total demand is procured from the best
vendor or multiple sourcing where it is split among several vendors. Below, we present consecutively the main works
dealing with each alternative.
Most models in the literature have assumed all problems parameters to be known with certainty. We will highlight the
models that incorporated uncertainty, mostly in pricing, in each of the single sourcing and multiple sourcing categories.
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3.1. Single sourcing models

When a relatively small number of parts are externally procured, the total demand can be supplied by only one
vendor. Such a single sourcing scenario seems tenable especially in the last decade, which has seen a signicant shift
in the sourcing strategy of many rms, moving from the traditional concept of having many suppliers to rely largely
on one source with which a long term winwin partnership is established. In these circumstances, the decision consists
of selecting one supplier for one order to meet the total buyers demand. This can be made while considering a single
criterion or a multitude of criteria. The literature survey reveals that except the multi-item weighting model proposed
by Grando and Sianesi [49] and the mathematical programming models developed by Benton [50] and Akinc [51], the
quasi totality of published works dealing with sole sourcing concern the procurement of a single item and does not
carry over into inventory management over time.
3.1.1. Single criterion approaches
Generally, in a situation with a single criterion, one retains the cost as the most important criterion. Traditionally,
vendor selection and evaluation were based on picking the least invoice cost supplier, ignoring other important sources
of indirect supplier costs like those associated with late delivery times, production breaks, poor quality of delivered
goods, etc. To overcome such limitations while considering cost-oriented selection, Timmerman [43] proposed the cost
ratio method which has the potential to yield much better decisions. It evaluates supplier performances by considering
indirect costs using tools of standard cost analysis. This total cost approach aims at quantifying for every purchased
item the costs associated with working with a specic vendor as much as possible in monetary units. Consequently, it
collects all the costs related to quality, delivery and service and expresses them as a benet or penalty percentage on unit
price. This percentage is then used to adjust the vendors quoted price to obtain a net adjusted cost gure. Operationally
speaking, the cost ratio method is an extremely complex approach, requiring a comprehensive cost-accounting system
to generate precisely the required cost data. Roodhooft and Konings [52] suggest the use of the activity based costing
approach (ABC) to compute total costs caused by a supplier in a rms production process. As in Timmermans model,
the system chooses the supplier who minimizes the total additional costs associated with the purchase decision (e.g.,
price differentials and supplementary estimated internal production costs caused by the supplier). A vendor evaluation
can also be done by comparing budgeted and actual scores after delivery of the products.
Mathematical programming was also employed by Benton [50] to select only one vendor to supply all needed items.
Using the economic ordering concept (EOQ), the author developed a nonlinear program and a heuristic procedure
using Lagrangian relaxation for supplier selection and lot sizing under conditions of multiple items, multiple suppliers,
resource limitations and all-unit quantity discounts. The buyers objective is to minimize the sum of purchasing cost,
inventory cost and ordering costs subject to an aggregate inventory investment constraint and an aggregate storage
limitation constraint.
3.1.2. Multi-criteria approaches
A large number of the researches dealing with procurement decision are concerned with selecting the best supplier
taking into account the multi-objective nature of the problem. In this area, several methods have been suggested in the
literature. The most common approach that has been rstly endorsed by Wind and Robinson [33] in supplier selection
uses linear weighting models to assess the vendors performance. This approach produces useful and reasonably reliable
data, and is relatively easy to implement. Made known principally by Zenz [53] and Timmerman [43], the basic model
is described as follows: giving some form of scoring methods, it consists in assigning weights to each criterion so that
the biggest score indicates the highest importance. After that, ratings on the criteria are multiplied by their weights and
summed in order to obtain a single gure for each vendor. Finally, the supplier who has the best mark compared to the
whole of the weighted criteria is chosen. We point out that such method is also suitable for the pre-selection phase of
the buying process. In this situation, we retain a set of suppliers having the highest scores.
Except for Grando and Sianesi [49] that do not combine ratings on different criteria into one overall score and De
Boer et al. [54] which propose a partially compensatory approach, these and similar methods are usually referred to
as compensatory approaches. In fact, as a result of summing of the scores, a poor performance on one score can be
compensated by a high one on another.
Although giving weights to the various criteria remains a subjective process, an interesting point which is common
to weighting models is that they all make some kind of trade-off between tangible and intangible factors to nd the
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best supplier. On the other hand, besides requiring a standardization of all the factor units, one problem in the linear
weighting model is the difculty to objectively determine the score of a supplier on a criterion or the importance of
some criterion with a high degree of precision. Dulmin and Mininno [55] focused on the problem of criteria weights
assessment. They propose an interesting survey of most commonly used methods and contend that the set of weights
should be a dynamic vector, because of modications in supply markets, product life cycle or changes in rms strategies
that lead decision makers to periodically update priorities in supplier performance.
A wide variety of slightly different models have been suggested for supplier choice. They principally differ on the
methods used to derive partial scores and weights for the criteria. As a rst adaptation of the basic model, we discern
the model proposed by Gregory [56]. It has linked this basic approach to a matrix representation of data and then rated
the different vendors for their quota allocations.
Using pairwise comparison, a more accurate scoring method that has been applied on supplier selection is the
analytical hierarchy process (AHP). Narasimhan [37], Partovi et al. [57], Nydick and Hill [58], Barbarosoglu and
Yazga [59], Yahya and Kingsman [60], Masella and Rangone [61], Tam and Tummala [62], Lee et al. [63], Handeld
et al. [64] and Colombo and Francalanci [65] propose the use of this technique to cope especially with determining
scores. It is a decision-making tool that can help describe the general decision operation by decomposing a complex
problem into a multi-level hierarchical structure of objectives, criteria, sub-criteria and alternatives [66]. In a recent
study, Liu and Hai [67] presented the voting analytical hierarchy process (VAHP) that is a novel easier weighting
procedure in place of AHPs paired comparison. The analytical network process (ANP), a more sophisticated version
of AHP, was also applied for vendor selection by Sarkis and Talluri [68,69]. In the same way, Willis et al. [70] use
dimensional analysis in a model where a series of pairwise comparisons are made among suppliers using a Vendor
Performance Index such that each criterion is measured in its own units.
Categorized by Degraeve et al. [21] and De Boer et al. [22] as a total cost approach, Monczka and Trecha [71]
combined this approach with rating systems for criteria such as service and delivery performance for which it is more
difcult to obtain the cost gures. As a result, it proposed multiple criteria vendor service factor ratings and an overall
supplier performance index using linear weighting models to adjust the net price for non performance costs associated
with the supplier. Smytka and Clemens [72] developed similarly a more elaborated total cost approach in which they
rst assess risk factors on a go/no-go basis. After that, they developed rates on several business desirable factors
such as delivery performance. Finally, they collected information on a very extensive list of measurable cost factors
and calculated the total cost.
Simple linear weighting models have also been adapted to deal with uncertainty in decision making deriving from
incomplete and qualitative data and unstructured purchasing situations (e.g., dynamic and subjective criteria and
alternatives). For the major part of the proposed models, the common feature to the techniques is that we do not directly
have to provide precise numerical parameters such as criteria weights.
Soukup [73] presents a method to deal with the uncertainty issue that focuses on the requirements uncertainty.
The author modied the linear weighting method by using probabilities for the criterion weights and a payoff matrix
representing alternative scenarios with different sets of performance scores and probabilities.
Other approaches not requiring precise weight assessments are statistical, such as those proposed by Williams [74],
Min [75] and Petroni and Braglia [76]. They respectively suggest the use of conjoint-analysis, indifference trade-off
method and principal component analysis.
Thompson [77] introduces Monte Carlo simulation to reduce the uncertainty innate to the rating mechanism. Afterward, he applied the Thurstone Case V scaling technique [78]. In this manner, setting criteria weights and assigning
performance score are not required and it sufces to give ranges of scores or simply qualitative rank-order information.
Fuzzy Theory (FST) was also looked at as a tool for vendor selection. Being able to model human judgment and
multi-criteria information, some papers (e.g., [20]) discussed its application when facing uncertainty. As a result, it was
combined in many studies with weighting models. Li et al. [79] propose a fuzzy set methodology by introducing the
SUR index that takes the inconsistency of the evaluator into account for each qualitative criterion. Morlacchi [80,81],
developed a model combining FST with AHP to evaluate small suppliers in the engineering and machine sectors.
Later, he focused on the design process of such model, highlighting the advantages and disadvantages of using hybrid
approaches of techniques [82].
With linear weighting models, it is not possible to take into account some quantitative aspects or factors of the
purchasing decision. To cope with this limitation, mathematical programming is a suitable alternative. Akinc [51]
proposed a decision support approach to select vendors in a single sourcing context under the conicting criteria
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of minimizing the annual material costs, reducing the number of suppliers and maximizing suppliers delivery and
quality performances. Mathematical programming was used to elaborate several models exploring the trade-off between
material costs and number of suppliers under a variety of scenarios (problem instances) dened with respect to specic
quality and delivery performance standards that vendors must achieve. In this way, a rst model nds the set of vendors
that minimize the total invoice cost regardless of their numbers. After that, a second model is used to nd the smallest
set of vendors who can supply all materials within the desired minimal quality and delivery parameters. Then, those
two solutions are used as benchmarks and a third model is employed to explore the quantitative trade-off between these
extreme solutions.
3.1.3. Single sourcing with uncertainties
Apart from the above adapted weighing models dealing with uncertainty, other works exist in the literature that
considers purchasing decisions with price uctuations. The earliest reported works date back to 1959. Fabian et al.
[83] developed a dynamic program to investigate the problem of determining monthly purchasing volumes for a single
commodity when prices and consumption are random variables. Morris [84] also uses dynamic programming to analyze
different purchasing strategies when future prices are considered random variables. He also provides conditions for the
optimality of a single purchasing strategy. Ammer [85] suggests using decision trees to examine different decision stages
and the possible probabilities in supplier negotiations. Golabi [86] extends the work of Morris [84] by considering
different assumptions about price distributions, planning horizon and the holding cost function. In a similar vein,
Kingsman [19] also assumes demand is deterministic and uses dynamic programming to nd optimal purchase policies
when prices are random, and possibly coming from different probability distributions. Recently, Polatoglu and Sahin
[87] investigated a multi-period procurement strategy where demand in each period is a random variable, the probability
distribution of which may depend on price and period.
3.2. Multiple sourcing models
A useful approach to ensure the reliability of a manufacturers supply stream is to follow a multiple sourcing policy.
In this situation, a buyer purchases the same item from more than one vendor and the total demand is split among them.
Even if this choice needs more exibility from the company, it is very interesting when one of the suppliers, for reasons
like price discount offers and possible limitations on capacity, quality, delivery, price, etc., cannot satisfy the assigned
demand. Researches such as Hong and Hayyas [88] have also argued that the use of multiple suppliers, in a majority
of cases especially in just-in-time environment, reduces the overall inventory and purchasing costs.
Due to their ability to optimize the explicitly stated objective subject to a multitude of constraints, mathematical
programming is the most appropriate technique that allows the decision maker to formulate such decision problems. It
allows considering internal policy constraints and externally imposed system constraints placed on the buying process
in order to determine an optimal ordering and inventory policy simultaneously while selecting the best combination
of suppliers. Gaballa [89] was the rst author who applied this technique to vendor selection in a real case. He used a
mixed integer programming model to formulate this decision making problem for the Australian Post Ofce. Until the
publication of the survey proposed by Weber et al. [9], only ten articles proposed the use of mathematical programming
techniques. But since that time, subsequent work in this area has been made and a great number of studies were
conducted considering different aspects and instances of the problem.
As highlighted in the beginning of this paper, when dealing with the supplier selection, a decision maker needs to
decide generally what to buy, from whom and when. As a result, to classify the published models in the situation of
multiple sourcing, two distinctions can be made. The former concerns the number of different purchased items and the
latter concerns the scheduling horizon.
3.2.1. Single and multiple item models
Fig. 2 and Table 1 show four major categories when considering the number of items purchased, recognizing two
particularly important features: single or multiple products ordered and the presence of any form of quantity discount
offered by vendors.
As stated earlier, various interdependencies could exist among the different products and taking into account the
different advantages of the synergy generated by the multiple products models (e.g. reducing purchasing, ordering and
transportation costs) is protable both for buyer and supplier especially in presence of quantity discounts. On the other
3525
What product
to order?
Single item
model
Without
discount
Multiple item
model
With
discount
All units
Incremental
Without
discount
Quantity discount
With
discount
Business volume
discount
Bundle discount
All units
Incremental
Fig. 2. Single and multiple item models.
Table 1
Classication of single item/multiple item models
Single item model
Without discount
With discount
Multiple item model
All-unit
Incremental
Other forms
Without discount
With discount
All-unit
Incremental
Business volume discount
Bundling
Other forms
Buffa and Jackson [110], Pan [111], Hong and Hayya [88], Weber
et al. [112], Current and Weber [113], Rosenblatt et al. [114],
Ghodsypour and OBrien [115], Zeng [116], Liao and Kuhn [117]
Chaudhry et al. [93], Tempelmeier [12]
Chaudhry et al. [93], Tempelmeier [12]
Chaudhry et al. [93]
Oliver [118], Rule [119], Chappell [120], Williams and Redwood [121], Bender et al. [122], Narasimhan and Stoynoff [123],
Kasilingam and Lee [124], Jayaraman et al. [125], Karpak et al.
[126], Bonser and Wu [127], Basnet and Leung [128]
Gaballa [89], Pirkul and Aras [92]
Sadrian and Yoon [96]
Rosenthal et al. [102], Sarkis and Semple [103], Murthy et al. [104]
Stanley et al.[15], NBS [16], Gainen [17], Waggener and Suzuki [90],
Austin and Hogan [91], Turner [105], Sharma et al. [106], Crama
et al. [109]
hand, when price break schedules that depend on the size of the order quantity placed are combined with the systems
constraints, selecting orders quantities becomes a difcult problem to solve. Consequently, the simplest problems in
Fig. 2 are successively the single item and multiple item models without considering discounts and the more complex
but more advantageous are those which consider a form of quantity discount while purchasing a range of products.
Classical inventory models traditionally involve two main types of discounts structure: quantity discounts and business
volume discounts. In the context of quantity discount, the sales volume of a product does not affect the prices and
discounts of the other products. Such structure can be applied to single item models as well as multiple item models
wherein products costs are considered independently, although they are offered by the same vendor. This class of
discounting strategy can be either noncumulative (incremental) or cumulative (all-units) which is the case in the
majority of practical situations. The earliest studies have used a modied form of the transportation problem to model
bid evaluations for procurements at the US Department of Defense [1517]. The linear programming model considers
different forms of pricings including quantity discounts and prices that increase with order quantities. Waggener and
Suzuki [90] use a similar model that is of a larger size and accounts for more pricing and supplier requirements scenarios.
Later, Austin and Hogan [91] extended this model to a mixed integer program that account for cases where a supplier
indicates a minimum acceptable quantity.
Gaballa [89] uses a mixed integer programming model to minimize total discounted price (all-units form) of allocated
items to the vendors, under constraints of vendors capacity and demand satisfaction. Pirkul and Aras [92] analyzed
as well the problem of determining order quantities for multiple items in the presence of all-unit quantity discounts.
The objective was to minimize the sum of aggregate purchasing costs, holding costs, and ordering costs subject to a
3526
linear resource constraint. They formulated their problem as a non linear program and developed a solution algorithm
using Lagrangian relaxation. Besides, Chaudhry et al. [93] presented a mixed linear integer programming formulation
to minimize the purchasing costs for individual items over a single period. The authors consider capacity constraints,
delivery performance and quality with successively cumulative and noncumulative quantity discounts. An extension to
goal programming was also proposed. Finally, in Tempelmeiers model [12], suppliers offer for a single product all-units
and/or incremental quantity discounts which may vary over time. As a result, Tempelmeier formulated an uncapacitated
multi-supplier order quantity problem with time varying all-units discounts as a mixed integer linear optimization
problem and an uncapacitated multi-supplier order quantity problem with time varying incremental discounts as a
mixed integer nonlinear optimization problem. A heuristic was developed for the resolution.
In the context of business volume discount, multi-item models are considered and a vendor offers discounts on the
total dollar amount of sales volume, not on the quantity or variety of the products purchased. According to Sadrian and
Yoon [94] and Katz et al. [95], this strategy has many benets to both vendors and buyers. However, the computational
difculties due to interdependence of product prices tied to a single discount schedule were the obstacle for buyers
attempting to purchase needed products under the business volume discount strategy. Sadrian and Yoon [96] treated
such form of discount by proposing a mixed integer programming model to optimize the total cost of purchases in the
presence of business volume discounts for one period.
Apart from quantity discounts and business volume discounts, a third class of discount strategy dealt with in multiitem models is the bundling. It is a scheme wherein the price of an item depends on the order quantities of other items.
This occurs when two or more related items are sold together as a bundle. Several studies have identied conditions
under which bundling is protable for the seller or when it needs to be avoided (e.g., [97101]).
Rosenthal et al. [102] were the rst who applied bundling in the context of supplier selection. The authors developed
a mixed linear integer programming to minimize purchasing costs over one period with constraints addressing vendor
capacities, demand satisfaction, quality and delivery requirements. The authors proposed also as extension to export the
idea of product bundling to an EOQ context. Later, Sarkis and Semple [103] suggested a reformulation of the problem
proposed by Rosenthal et al. [102]. Thus, they signicantly reduced the computational workload and eliminated some
limitations and a paradox revealing a more cost effective purchasing strategy. Recently, Murthy et al. [104] addressed
the buyers vendor selection problem for make-to-order items where the goal is to minimize sourcing and purchasing
costs in the presence of xed costs, shared capacity constraints, shared setup costs, and volume-based discounts for
bundles of items. Giving quotes in the form of single sealed bids or facing dynamic auction involving open bids, the
model has to determine the best bid among those proposed or winners at each stage of a dynamic auction. Due to the
complexity of the mixed integer programming formulated, a heuristic procedure based on the Lagrangian relaxation
technique was developed to solve the problem.
Slight different discount schemes also exist in literature. Treating a vendor selection problem faced by British Coal,
Turner [105] discussed three types of discounts: deferred rebates based on the total value of the order, deferred rebates
based on the order quantity, and marginal discounts based on the total value of the order. The problem was formulated as
a mixed integer program that minimizes total contract cost, and constrained by demand satisfaction, vendor capacities,
minimum and maximum order quantities and geographic region purchasing restrictions. This model relaxed, however,
any dependence of unit price on size of order quantity. The linear program was costly to solve, so a quasi-optimizing
heuristic routine was adopted. Sharma et al. [106] proposed a nonlinear, mixed integer, goal programming model. They
considered price, quality, delivery and service as goals. The cost goal was nonlinear and the total cost of purchased
materials was inversely proportional to quantity purchased and lead time, but increased linearly as the quality level
increased.
Related research work dealing with price breaks regimes when selecting suppliers, concerns not only discounts but
also surcharges. Contrary to the discounts offers where unit price of a vendor declines as the order quantity placed
increased, with surcharges, it increases. Such situation is faced whenever the ordered material is a scare source, like an
energy product [107]. To our knowledge, only Chaudhry et al. [93] considered the presence of surcharge and focused
on the impact of considering price break schedules (all-unit vs. incremental, and discounts vs. surcharges).
Finally, from our analysis of the works currently being reported for supplier selection we can conclude that considering
price discounts is a decisive factor for selection and order quantity allocation. Effectively, it inuences signicantly
the nal decision that is why it has been considered in several studies combining the supplier selection issue with
other features. By way of example, Ganeshan et al. [108] strike a balance between the use of just one supplier, and the
perceived cost benets of using several while considering reliability and discounts. Crama et al. [109] presented also an
3527
interesting extension of the basic supplier selection problem that considers price discounts. It focused on procurement
decisions in presence of total quantity discounts and alternative product recipes which increased the complexity of
the problem. The authors consider a medium-term purchasing decision faced by a multi-plant chemical company.
Assuming that each product made by the company can be processed according to several recipes, where each recipe
species which proportion of each ingredient, the rm aims at simultaneously optimizing its procurement plan and its
production plan while considering quantity discounts based on the total quantity of ingredients purchased over a year.
They formulated the corresponding cost-minimization problem as a nonlinear mixed 01 programming problem and
proposed various ways to linearize it.
3.2.2. Single and multiple period models
Regarding the second distinction related to the third decision of the supplier selection problem (i.e., in which periods?),
the vast majority of approaches that have been investigated up to now are single period models solving only a short term
planning problem. In reality, when planning horizon covers several periods, the problem becomes harder, but has the
potential to yield much better procurement plan by considering inventory management. This balances ordering costs
and holding costs and permits to select the supplier with a low ordering cost when frequent ordering is necessary due
to inventory management reasons (e.g., perishable inventory). In addition, this exibility of deciding when to receive
deliveries and how large they will be may signicantly reduce ordering and purchasing costs especially whenever there
are quantity discounts, by establishing a trade-off between receiving a quantity discount and the inventory holding
costs when buying larger lot-sizes. Thereby, as shown in Fig. 3 and Table 2 , we conclude that approaches developed
to model supplier selection can be classied as single period models that do not consider inventory management over
time and multi-period models which consider inventory management by determining an order sizing policy scheduling
while selecting suppliers.
Multi-period inventory lot-sizing has been one of the most studied problems in production and inventory management
literature. Bahl et al. [129] proposed an interesting review of related literature providing four categories for classifying
works in this area: (1) single-level unconstrained resources, (2) single-level constrained resources, (3) multiple-level
constrained resources, and (4) multiple-level unconstrained resources. Levels refer to the different levels in a bill of
In which periods?
Single period (no inventory management) Multi-period (with inventory management)
Multi-period horizon
EOQ concept
Stationary parameters
Dynamic parameters
Fig. 3. Single and multiple period models.
Table 2
Classication of single period/multiple period models
Single period model
Multiple period model
EOQ
t [1, T ]
Stanley et al. [15], NBS [16], Gainen [17], Oliver [118], Waggener and
Suzuki [90], Rule [119], Chappell [120], Williams and Redwood [121], Gaballa [89], Austin and Hogan [91], Pirkul and Aras [92], Narasimhan and
Stoynoff [123], Turner [105], Pan [111], Chaudhry et al. [93], Weber et al.
[112], Hong and Hayya [88], Current and Weber [113], Sadrian and Yoon
[96], Rosenthal et al. [102], Kasilingam and Lee [124], Jayaraman et al.
[125], Karpak et al. [126], Sarkis and Semple [103], Zeng [116], Murthy et
al. [104], Crama et al. [109]
Rosenthal et al. [102], Rosenblatt et al. [114], Ghodsypour and OBrien
[115], Liao and Kuhn [117]
Buffa and Jackson [110], Bender et al. [122], Sharma et al. [106], Bonser
and Wu [127],Tempelmeier [12], Basnet and Leung [128]
3528
material structure where dependency of requirements exists, and constrained resources refer to production capacity
limitations. To our knowledge, level dependencies have not been considered in supplier selection problems to date.
In the survey proposed by Weber et al. [9], 14 papers that use the Economic Order Quantity concept in supplier
selection have been identied. More recently, Rosenblatt et al. [114] have used the EOQ model to develop a nonlinear
program for nding optimal supplier selection and order quantities for a single item. They have assumed that a supplierdependent xed cost will be incurred whenever a supplier is chosen. Ghodsypour and OBrien [115] also used the EOQ
concept in a single item model. Assuming that the suppliers lots arrive one after the former one is used up, a mixed
integer nonlinear programming model to minimize the total annual cost of logistics is proposed. It includes aggregate
price, ordering, and inventory costs, subject to suppliers capacity constraints and buyers demand and limitations
on budget and quality. The authors also discussed a second multiple objective programming approach to take into
account different weights for various criteria. In a similar vein, being an extension of Webers study [112], Liao and
Kuhn [117] proposed a multiobjective program for a single item model under the assumption that all suppliers lots
simultaneously arrive at the beginning of each replenishment period. The objectives are the minimization of the total
cost, the total quality rejection and the total delivery late while the constraints concern the capacity and demand
satisfaction. To deal with the multiobjective optimization, a Genetic Algorithm was applied. Further, two-objective
and three-objective optimization results are compared to Webers studies, which prove GA satisfying in solving such a
problem.
Included in the stream of researches integrating supplier selection and procurement lot sizing are works by Oliver
[118], Rule [119], Chappell [120], Williams and Redwood [121], Anthony and Buffa [130], Buffa and Jackson [110],
Bender et al. [122], Pan [111], Tempelmeier [12] and Basnet and Leung [128]. These works do not consider EOQ
concept to carry out procurement lot sizing decisions. Instead, they consider a multi-period planning horizon and
dene variables to determine the quantity purchased in each elementary period. Several works are based on a modied
version of the linear programming transportation model (e.g., [111,118121,130]).
Buffa and Jackson [110] presented a schedule purchase for a single product over a dened planning horizon via
a goal programming model considering price, quality and delivery criteria. It included buyers specication such as
material requirement and safety stock.
Bender et al. [122] studied a purchasing problem faced by IBM involving multiple products, multiple time periods,
and quantity discounts (the type of quantity discount was not mentioned). The authors described, but not developed,
a mixed integer optimization model, to minimize the sum of purchasing, transportation and inventory costs over the
planning horizon, without exceeding vendor production capacities and various policy constraints.
Contrary to single period models dealing with any form of price discount, by considering inventory management in
a multi-period horizon planning, Tempelmeier [12] incorporates a trade-off between ordering larger quantities to get a
reduction on purchasing costs and maintaining low inventories to minimize holding costs.
Basnet and Leung [128] balance ordering and holding costs in a multi-item model by considering a multi-period
scheduling horizon. They proposed an uncapacitated mixed linear integer programming that minimizes the aggregate
purchasing, ordering and holding costs subject to demand satisfaction. The authors proposed an enumerative search
algorithm and a heuristic to solve the problem.
Finally, we should highlight that only Tempelmeier [12] proposed a planning model for supporting short-term
selection and order sizing under time varying parameters (dynamic demand and time-varying price discounts). Due to
time dependency too, Hong et al. [131] divided the analyzed period into several meaningful period units. An elementary
period is dened as a period in which a sales environment can be distinguished from that of a previous period.
Indeed, almost all multi-period models do not consider any time depending (dynamic) parameter and assume them
to be constant. However, due to multiple reasons such as market environments added to changes of production and
delivery parameters and/or conditions, suppliers capabilities and buyers requirements may change over the periods.
In fact, it is difcult to maintain the same capability condition during all supply periods especially in types of industries
which have seasonal demands and have a wide uctuation of capability condition over time. Talluri and Sarkis [132]
report on a case where performance of a selected supplier is monitored across 18 time periods using DEA. They indicate
that the suppliers efciency changed from on period of time to another.
3.2.3. Technique-oriented classication
By considering the analysis of the above studies concerning the multiple sourcing supplier selection, it can be
concluded that apart from the two above distinctions (single item/multi-item and single period/multi-period), we can
3529
Criteria
Multiple Objectives
Single objective
Linear Programming Mixed Integer Programming
Other
Multi Objective Programming Goal Programming
Fig. 4. Technique-oriented classication.
also propose a technique oriented classication. As shown in Fig. 4, published works can be divided into two groups
(1) single objective and (2) multiple objective.
Single objective techniques:
Linear programming method: Stanley et al. [15], NBS [16], Gainen [17], Oliver [118], Waggener and Suzuki [90],
Rule [119], Chappell [120], Williams and Redwood [121], Anthony and Buffa [130], Pan [112], Ghodsypour and
OBrien [133].
Mixed integer programming method: Gaballa [89], Austin and Hogan [91], Bender et al. [122], Narasimhan and
Stoynoff [123], Turner [105], Chaudhry et al. [93], Sadrian and Yoon [96], Rosenthal et al. [102], Kasilingam and
Lee [124], Jayaraman et al. [125], Sarkis and Semple [102], Ghodsypour and OBrien [115], Zeng [116], Talluri
[134], Tempelmeier [12], Murthy et al. [104], Crama et al. [109], Basnet and Leung [128].
Others:
Dynamic programming: Fabian et al. [83], Morris [84], Kingsman [19].
Nonlinear programming: Pirkul and Aras [92], Hong and Hayya [88], Rosenblatt et al. [114].
Stochastic programming: Bonser and Wu [127].
Decision theory: Ammer [85].
Multiple objective techniques:
Multi-objective programming method: Weber et al. [112], Ghodsypour and OBrien [115], Liao and Kuhn [117].
Goal programming method: Buffa and Jackson [110], Sharma et al. [106], Chaudhry et al. [93], Karpak et al. [126].
Other: Siying et al. [135] who used neural networks.
All of the above mentioned single objective programming methods aim at minimizing costs. Depending on models
type, they mainly include: purchasing price, xed cost of establishing a vendor, price breaks, and inventory costs for
multi-period models. Some penalties related to poor quality, shortage or inefcient utilization of supplier capacities are
also taken into account in some approaches. We should note that only Current and Weber [113], which demonstrated
that the vendor selection problem may be formulated within the mathematical constructs of facility location modeling,
consider minimizing the number of suppliers used. We remark too that very little attention has been paid to transportation
costs in the published works. For example, Kasilingam and Lee [124] had only incorporated the unit transportation
cost from the vendor in the product unit price and Ding et al. [136] consider the different transportation links between
the supplier and the warehouse.
By its nature, in single objective models only one criterion is considered as objective function. The other relevant
criteria such as quality and led-time are modeled as constraints. In this situation the criteria which are considered as
constraints are weighted equally which rarely happens in practice because decision makers often prioritize their criteria
differently. Moreover, as pointed out by Weber et al. [112], the trade-off between conicting criteria cannot be apparent.
To overcome these limitations and provide a more robust method addressing the multi-criteria nature of the decision,
some researches suggest the use of multi-objective programming and goal programming methods. As no one solution
exists which is optimal for all of the objectives, such methods aim at minimizing deviations from each goal, in order
of priority. Higher priority goals are satised at the expense of lower priority goals.
Many studies such as Webers work in 1993 [112], that was the rst to introduce a multi-objective programming
model for supplier selection, afrm that this alternative has several advantages over single objective analysis. The
authors assert that it allows the various criteria to be evaluated in their natural units of measurement (e.g., cost per
delivered unit, percent of nonconforming units, percent of units delivered on time) and therefore, eliminates the necessity
3530
of transforming them to a common unit of measurement. They also added that such techniques present the decision
maker with a set of or nondominated solutions. Consequently, it permits the decision maker to incorporate personal
experience and insight in making nal decisions. The literature analysis shows also that multi-objective techniques
provide a methodology to analyze the impacts of decisions that entail a reordering of priorities on rms objectives.
As pointed out by Weber et al. [112], the proposed mathematical approaches to model supplier selection include two
kinds of constraints: system and policy constraints. System constraints are dened as those that are not directly under
the control of the purchasing rm whereas policy constraints are those which the purchasing department can directly
inuence.
In addition to the single objective models quality and total late requirements constraints, system constraints can also
include:
supplier capacities,
buyers storage capacity,
demand satisfaction,
minimum order quantities established by the suppliers,
price breaks,
limitation of purchasing budget.
Policy constraints may include depending on the rms strategy:
minimum and/or maximum number of suppliers selected,

minimum and/or maximum order quantities placed with suppliers,
geographic preferences and regional allocated bounds,
safety stock.
Some constraints may be ignored or fall into either of the constraint categories depending upon the purchasing context
or policy. By way of example, we point out that some models do not consider the supplier capacities [111,113,12,128].
In this situation, selecting suppliers and allocating orders are only imposed by factors such as quality and led time
requirements, minimum of suppliers to be selected, minimizing order and holding costs.
3.2.4. Alternative models

3.2.4.1. Total cost of ownership (TCO) models As stated earlier when we introduced the total cost approaches, TCObased models attempt to include all quantiable costs in the vendor choice process that are incurred throughout the
purchased items life cycle. Ellram [137] introduces the concept of TCO as applied to purchasing. She also compares
TCO to other purchasing framework and provides TCO model examples for supplier evaluation and selection. Degraeves et al. studies [138,139,13] are the main works that proposed mathematical programming models that minimize
the total cost of ownership. These models are based on the activities and cost drivers determined by an ABC system
that allows including all relevant costs categories.
Degraeve and Roodhooft [139] recognized three hierarchical levels in the decision support system to describe the
supplementary activities caused by the suppliers:
(1) The supplier level activities that include costs assigned to a supplier whenever he is used over the time horizon
considered in the procurement decision.
(2) The order level activities including costs incurred each time an order is placed with a supplier.
(3) The unit level activities where costs for the individual units of the products are considered.
Degraeve and Roodhooft [138] recognized also a fourth level related to specic batches. Using these levels, the authors
proposed formulations to select suppliers and determine order quantities over a multi-period time horizon for a single
item in [138] and for a range of items in [139]. In a similar vein, Degraeve et al. [13] developed a TCO based mathematical
programming model that selects suppliers of a multiple item service and simultaneously determines market shares of
the suppliers selected.
3531
Note that such models reduce subjectivity by indicating and quantifying the supplementary activities caused by the
suppliers. Furthermore, the quantication of criteria and the trade-off between them is no longer a problem because the
objective function is dened with respect to the purchasing decisions caused by the vendor. Nevertheless, we should
add that supplier selection models using ABC are more costly to implement than traditional approaches. However,
experience shows that the incremental cost of data gathering for ABC systems is often overestimated and that rms
have implemented it at acceptable cost [140].
3.2.4.2. Integrated models Another stream of research suggests considering both quantitative and qualitative measures
to better model the multi-criteria nature of the decision. Ghodsypour and OBrien [133], Benyoucef et al. [40], Wang
et al. [141] and recently Hong et al. [131] proposed such global approaches. They are achieved in two phases. At rst,
a supplier evaluation is elaborated using a multi-criteria tool. In the rst three above references, the AHP method was
applied to make the trade-off between tangible and intangible factors and calculate a rating of suppliers. As for Hong
et al. [131], they apply a CA to segment and select candidate groups by periods in time in the prequalication step (the
paper treated the entire selection process).
The second stage of these global approaches consists of effectively selecting the suppliers and allocating orders
using mathematical programming to take into account the system constraints. Thereby, in [133], calculated ratings are
applied as coefcients of an objective function in a linear program such that the total value of purchasing becomes a
maximum. This single period single item model was constrained by the demand, capacity and quality requirements.
Likewise, Benyoucef et al. [40] proposed a multi-period single item mixed integer programming model that has a
similar objective function. The formulation considered constraints treating the requested demand, quality and lead time
satisfaction, and the minimum and maximum ordered quantity.
In addition to a goal that maximizes the total value of purchase (AHP ratings input), Wang et al. [141] considered
a second goal that minimizes the total cost of purchase. The resulted preemptive goal programming determines the
optimal order quantity from the chosen suppliers considering as constraints vendor capacities and demand requirements.
As for [131], after dividing suppliers into several groups having similar features of supply conditions during each
elementary period in the previous step, each group may satisfy some criteria of procurement condition in time t but may
not satisfy all the conditions. Consequently, the authors attempt to maximize the revenue by assigning more suppliers of
the group which meets the procurement conditions than for those of other groups. The authors propose a mixed integer
program to nd the optimal solution and assign orders while maximizing the revenue and satisfying the procurement
conditions.
3.2.4.3. Efciency-based vendor selection and negotiation models At this stage, we turn our attention towards the
vendor evaluation and negotiation models provided in the literature. Miller and Kelle [142] contend that limited
research have been paid to supplier negotiation. Weber and Desai [46] have shown how DEA can be used as a tool
for negotiation with inefcient suppliers. Subsequently, a series of studies was conducted to integrate the process of
supplier selection and negotiation in multiple sourcing contexts based on a DEA model by Weber et al. [143,144]. In
this rst paper, both multi-objective programming (MOP) and DEA are used and three approaches for the selection
and negotiation are described. In a rst stage, using the MOP model proposed by Weber and Current [112] the set of
selected and not selected suppliers are identied. Then, a negotiation is established with vendors which have not been
selected by the MOP model in order to become part of the solution set. In the second paper, the MOP and DEA are
used a similar problem solving approach to evaluate the number of vendors a rm may wish to employ to supply a
product or a service. The approach advocates developing vendor-order quantity solution (referred to as supervendor)
using MOP and then evaluating the efciency of these supervendors on multiple criteria using DEA.
Although Webers et al. studies provided innovative ways of approaching the vendor evaluation and negotiation
problem, it has certain limitations. It only allows for negotiation with inefcient vendors. In order to overcome these
limitations, Talluri [134] proposes a buyerseller game model minimizing the efciency for evaluation, selection and
negotiation. It evaluates the efciency of alternative bids, with respect to the ideal targets set by the buyer. Effective
negotiation strategies have also been proposed in order to make the unselected bids competitive. Four variations of
the model are developed also to assist the buyer in different types of purchasing situations. The model evaluations
are integrated into a 01 integer programming formulation in determining the optimal set of vendors to be selected in
meeting the demand requirements without violating the minimum order necessities of the vendors. Zhu [145] shows
that Talluris model is closely related to DEA and can be simplied. The paper presents a new buyerseller game model
3532
where the efciency is maximized with respect to multiple targets set by the buyer. It allows the buyer to evaluate and
select the vendors in the context of best practice. By both minimizing and maximizing the efciency, the buyer can
obtain an efciency range within which the true efciency lies given the implicit trade-off information characterized
by the targets.
Recently, Cakravastia and Nakamura [146] proposed an integrated supplier selection and negotiation process for
multiple parts/materials procurement. Their study aims at integrating decisions in the internal supply chain of a maketo-order manufacturer. During the negotiation process, two main decisions are considered: the manufacturing planning
decision responsible for determining the production schedule and fabrication lot size and the supplier selection decision
concerning which suppliers are selected for company business and the order volume allocated to each selected supplier.
The model is designed to support the negotiation process by generating a set of effective alternatives to support the
decision-maker in each negotiation period. Its structure is multi-objective and non-linear. The set of effective alternatives
is generated by a combination of the interactive weighted Tchebycheff method and Benders decomposition method.
3.2.4.4. Stochastic models In a decision making situation like vendor selection, high degree of uncertainties and
fuzziness are involved in the data set and the different parameters and stages of the problem. Although in real-life the
problem is stochastic, almost all supplier selection approaches in the literature assume parameters to be deterministic
and known. Only a very limited number of studies took into account the stochastic and uncertain nature of multiple
sourcing supplier selection. Horowitz [147] considers a two-source purchasing problem. While, the rst source offers
the product with a known price, the second sources price is uncertain. Horowitz explains why it is rational for a buyer
to purchase a positive amount from the supplier that offers higher prices.
Dasgupta and Spulber [148] study both single and multiple sourcing scenarios. They construct an auction model and
assume that the buyer knows the suppliers cost information only after they submit their bids. They identify optimal
auction mechanisms that maximize the buyers expected gain subject to the condition that the mechanisms are perceived
to be fair and rational by the suppliers.
Kasilingam and Lee [124] handled this aspect in a multiple item single period model that considers a normally
distributed demand. The authors develop of a chance-constrained integer programming formulation to address the
vendor selection and order allocation by minimizing costs due to receiving poor quality, purchasing and transportation,
and the xed cost of establishing vendors. Their model also considers the lead time requirements and vendorscapacities
and uses a chance constraint to model the stochastic nature of demand.
Addressing the issue of achieving quality by concurrent tolerance design and supplier selection, Feng et al. [2]
use the stochastic integer programming (SIP) to model the relationship between manufacturing cost, quality loss
cost, assembly yield, and discrete tolerances. Process capability indices and quality loss functions were incorporated
also in one optimization model to achieve the required quality level and the minimum total cost of manufacturing and
quality loss.
Bonser and Wu [127] model a multi-source fuel procurement for an electrical utilities rm. The rm has a main
supply source, arranged through a yearly contract to buy a minimum fuel amount, and has the option to purchase
additional amounts through the spot market. The authors consider both demand and price uncertainty and develop a
stochastic program to nd the optimal purchasing strategy.
Several other works have also considered the uncertainty in supplier selection processes. Ronen and Trietsch [149]
proposed a statistical multiple item model taking into account inventory management over time and assuming the
distribution of the lead time to be a known exponential distribution. They develop a decision support system for
supplier choice and ordering policy in the context of a large project. Seshadri et al. [150] develop a probabilistic model
to represent the connection between multiple sourcing and its consequences such as number of bids, the sellers prot
and buyers price. Only one criterion, cost, is considered and the authors stated that the user should transfer the other
criteria like quality, delivery etc., into an equivalent price. They consider the scenario where suppliers do not know how
many other suppliers are also bidding, their production cost as well as the other biddersproduction costs. Seshadri [151]
looks at the merits of dual sourcing over single sourcing under similar assumptions on the procurement environment.
Laffont and Tirol [152] and Stole [153] investigate two-period procurement situations where the buyer has the option
to procure from a second source.
As in single sourcing contexts, Fuzzy Set Theory has also been used to select a set of suppliers. Kumar et al. [154]
propose a fuzzy mixed integer goal programming formulation to handle the vagueness and imprecision in the statement
of the objectives in a single item single period model. The problem considers three fuzzy goals: minimizing the net cost,
3533
minimizing the net rejection and minimizing the net late delivery. It included realistic constraints regarding buyers
demand, vendors capacity, vendors quota exibility, total purchase value for all the ordered quantities and restriction
on the purchase budget.
4. Purchasing for services

The major difference between parts and services purchasing is that services cannot be stored and so there are no
inventory costs associated with service purchasing. Here we will only report on quantitative models for service supplier
selection. A brief review of the literature that discusses general ideas and case studies related to services purchasing can
be found in Degraeve et al. [13]. Unlike the case of parts purchasing, we found that there is only a limited number of
studies that model the service supplier selection problem. Most of these studies use some form of an auction to model,
often using mathematical programming techniques, or experiment with the service procurement process. Elmaghraby
[155] provides an overview of auction based procurement strategies that have been studied in the operations research
and economics literature.
Auction environments allow the sellers and buyers to compete where the former would offer their services at charges
that are in line with the latters cost and savings information. One of the earliest works in this area is that by Grether et al.
[156] where they look at the problem of allocating airport time slots to airlines. They propose a two stage mechanism:
(1) time slots are rst procured through a competitive sealed-bid auction that does not take into account slot demand
interdependencies and (2) an airlines can sell and purchase time slots on a after market basis to support their actual
demand needs. Rassenti et al. [157] point out some disadvantages of this two-stage policy that stem mostly from the
inefciency of the after market stage. They propose instead a combinatorial sealed-bid auction that would account for
airlines schedule needs. Since then auctions models have been proposed and applied in several service environments:
Franchises [158,159], public services [160,161], space station services [162], rail tracks [163,164] and transportation
services [165,166].
Mixed integer programming models have also been used to nd the optimal supplier mix in a service environment.
Oliveira and Loureno [14] discuss the problem of selecting suppliers for the construction of pipeline networks for
gas distribution. They develop a multi-source and multi-period model that allocated construction orders to a pool
of pre-qualied set of suppliers. They also allow for the possibility of new suppliers to the pre-selected pool. As
mentioned earlier, Degraeve et al. [13] use the concept of a total cost of ownership to select airlines for a major
company. They develop a large complex mixed integer program that accounts for several airline fair discounting
schemed. Finally, Klundert et al. [167] report on a model for selecting international telecommunication carriers for a
major telecommunication service provider. They account for volume discounts and show that a special case of their
model results in a min-cost ow model.
5. Recent trends
As is the case for most other supply chain processes, the availability of internet and its related information technology
is having an increasing inuence on the way purchasing operations are being conducted. Internet-based procurement,
henceforth referred to as e-procurement, offers both buyers and suppliers access to a wider set of options for conducting
their procurement relationships. Several types of e-procurement markets have been setup that handle noncritical products
such as industrial chemicals and metals and printed circuit boards. Auctions are one of the most common mechanisms
for running these markets. The literature on auctions theory, examples of which were described in the previous section,
has mostly focused on a auctioning a single item. With the rise in the adoption of e-procurements auctions, where a
company may order a combination of products, research on multi-item auctions is expected to increase. Recent surveys
of auction theory can be found in [168,169].
The literature on the modeling of e-procurement is still in its infancy. Barua et al. [170] propose an analytical model
for selecting suppliers on the internet. They account for supplier search, communication and evaluation costs and
provide insights as to when a sequential evaluation or a bidding process should be adopted. Teich et al. [171] propose
algorithms for running multi-attribute electronic auctions. A literature review on multiple attribute auctions can be found
in [172]. Peleg et al. [1] study three scenarios: (1) long-term single-source relationship (2) short-term e-procurement
3534
relationship and (3) a combination of the rst two strategies. They also nd the optimal number suppliers to evaluate in
the case when e-procurement is used. Kleindorfer and Wu [173] review several frameworks that have been suggested
for managing e-procurement. Scott and Scott [174] develop both single and multiple objective models for operating
e-procurement marketplaces. In their model they investigate the case where a brick-and-mortar marketplace is used
and allow for dual sourcing. Buhler and Kalagnanam [175] discuss a multi-attribute auction with multiple sources.
They propose a mixed integer program and allow for the supplier to offer different bid conguration, such as different
discount level based on each attribute. Wu and Kleindorfer [176] look at the case where a buyer has access to multiple
suppliers either through long-term contracting or the spot market. They investigate the problem of nding the best mix
of contracting and spot buying.
6. Conclusion and suggestions for future research

In recent years, the purchasing function has been seen by many managers as a key strategic tool in the rms
attempt to achieve positional competitive advantage [177]. Moreover, as more manufacturing organizations adopt total
quality management and just-in-time concepts, the role of suppliers and supply chain management becomes even more
important [31]. Consequently, subsequent work in this area has been done. Several researches have addressed the
strategic importance of the vendor evaluation and selection over the last three decades, emphasizing the impact of such
decisions on various functional areas of a business from procurement to production and delivery of the products to
the nal customer. Great attention has also been paid to develop decision models as well as decision support tools,
dealing with the different aspects and stages of the buying process. In a recent study, De Boer and Van der Wegen [23]
attempt to assess the perceived merit of using such formal decision tools and approaches for selection in practice by
investigating the receptivity of decision makers to their use. So, applying a range of techniques in the different phases
of previously solved supplier selection instances, they compared decision situations in which a formal decision tool is
used with a situation in which this is not the case. The experiments reveal that formal decision models may prove to be
useful in various ways throughout the whole supplier selection process and in different purchasing situations.
This paper presents an up-to-date comprehensive literature review of the supplier selection. First, the main features
buying process were summarized. In view of its complexity, we then focus thoroughly on the nal selection step
identifying different distinctions and proposing classications of the published works.
The analysis of the decision models provided useful information and enabled us to nd some gaps in the literature.
First of all, given the recent rise in outsourcing, it is somewhat surprising how little attention has been paid to the
purchase of services. The vast majority of the publications found seem to have been written in the context of selecting
suppliers for the purchase of raw materials and products to be used in a manufacturing environment. Secondly, we point
out that most of the existing papers propose decision models for the nal choice phase and only few works treat the
previous steps, especially those of problem and criteria formulation. However, the quality of the choice phase is largely
dependent on the quality of the steps prior to that phase. Thirdly, we observed that mathematical programming is the
most frequently used approach. This can be explained by the fact that MP models are more objective than rating models
because they force the decision maker to explicitly state the objective function. As shown numerically by Benyoucef
et al. [40], the mathematical approach was the best selection method which takes into account all the constraints. The
comparison of the published approaches relative efciency using the total cost of ownership concept elaborated by
Degraeve et al. [21] also reveals that, for their specic case study, mathematical programming models outperform rating
models. Unlike mathematical programming, weighting models cannot guarantee an optimal solution to any instance
of the supplier selection problem while incorporating relevant constraints.
Several conclusions can be drawn from Table 3 . A rst remark concerns the techniques used. Although many
researchers such as Weber et al. [9,112] and Karpak et al. [126] contend that MOP and GP have the potential to yield
much better solutions due to their ability to make a trade-off between the different and sometimes conicting criteria,
mixed integer programming is the most frequently used technique. Unlike MOP and GP models, MIP was used to
model many complicating features such as quantity discounts, integration of inventory management and multiple item
purchasing.
The experiments presented by Degraeve et al. [21] conrmed that multiple item models generate better results
than single item models as well as the incorporation of inventory management. Nevertheless, as shown in Table 3 and
highlighted by Tempelmeier [12] and Basnet and Leung [128], most of the works that have been done so far concentrate
Talluri [134]
Weber et al. [112]
MILP
MOP
Other
GP
Pan [111]
LP
Zeng [116]
Chaudhry et al.
[93]
Fabian et al.
[83], Morris [84],
Kingsman [19],
Rosenblatt et al.
[114], Bonser and
Wu [127]
Ghodsypour and
OBrien [115],
Liao and Kuhn
[117]
Ghodsypour and
OBrien [115]
Buffa and Jackson

[110]
Tempelmeier [12]
Siying [135]
Karpak et al. [126]
Current and Weber

[113], Kasilingam
and Lee [124],
Jayaraman et al.
[125]
Anthony and Buffa

[130], Narasimhan
and Stoynoff [123]
Without discounts
Stanley [15], NBS
[16], Gainen [17],
Oliver [118],
Waggener
and
Suzuki [90], Rule
[119], Chappell
[120], Williams
and Redwood
[121]
Austin and Hogan
[91], Gaballa [89],
Turner [105],
Sadrian and Yoon
[96], Rosenthal et
al.[102],
Sarkis
and Semple [103],
Murthy et al.
[104], Crama et al.
[109]
With discounts
Without discounts
Without discounts
With discounts
Without inventory management
With inventory management
Without inventory management
With discounts
Multiple item
Single item
Table 3
Classication of published models
Bender et al. [122],

Basnet and Leung
[128]
Without discounts
Pirkul and Aras

[92]
Rosenthal et al.
[102]
With discounts
With inventory management

3535
3536
on isolated aspects of the complete problem. Several assumptions are frequently set in order to reduce its complexity.
Indeed, specialized solution algorithms are developed which cannot be applicable in other sourcing situations.
Finally, given the rise in outsourcing, e-procurement, and the wide adoption of supplier relationship management
modules as part of enterprise resource planning systems, thus facilitating the access to supplier related data, we expect
that the demand for research in the area of supplier selection will only increase. Here we cite some of the major research
venues that we think merit the attention of the operations research/management community:
Development of efcient algorithms for complex lot sizing and supplier selection environments such as the case of
multi-item multi-period models with different supplierpurchase coordination/incentive mechanisms. As is the case
for the work of Tempelmeier [12], such algorithms would nd direct application in supply chain execution software
packages.
Incorporating the supplier selection decisions in a negotiation process where both of the buyer and seller points of
view can be taken into account. Most of the existing literature focuses only on the buyers side.
Although the theory of auctions has been mostly driven by research from economists (in fact most previous literature
surveys on purchasing failed to review auction-based studies), the operations research community is becoming more
active in this eld. Research on combinatorial auctions where a buyer can choose a collection of items under different
preferences and supplier conditions is a promising and challenging research area.
Given the increasing awareness of rms for the need to coordinate activities and processes beyond the boundary
of their company, it would be interesting to investigate the role of coordination mechanisms on the selection of
suppliers. The traditional cost-based models assumptions may not hold in such context as in a coordination framework
nonminimum cost alternatives may be chosen by one supply chain partner in favor of maximizing the overall chains
prot.
As precise and deterministic information is generally not available for designing and managing a supply chain, it
is necessary to thus necessary to develop models which can consider the stochastic elements such as uncertainty in
demand, probabilistic behaviors of the potential suppliers and unknown performances of potential new ones.
In these recent years, some articial intelligence (AI)-based approaches such as case-based- reasoning systems, neural
networks and expert systems were developed for the prequalication and nal selection of suppliers. Their ability
to mimic the human judgment processes makes these techniques promising for possible applications in purchasing
and negotiation management.
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Computers & Operations Research 34 (2007) 3516 3540

Supplier selection and order lot sizing modeling: A review

Available online 9 March 2006

N. Aissaoui et al. / Computers & Operations Research 34 (2007) 3516 3540

Fig. 1. Major purchasing processes.

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N. Aissaoui et al. / Computers & Operations Research 34 (2007) 3516 3540

2. The vendor selection process: different stages and characteristics

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N. Aissaoui et al. / Computers & Operations Research 34 (2007) 3516 3540

N. Aissaoui et al. / Computers & Operations Research 34 (2007) 3516 3540

3.1. Single sourcing models

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Fig. 2. Single and multiple item models.

Multiple item model

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N. Aissaoui et al. / Computers & Operations Research 34 (2007) 3516 3540

Fig. 3. Single and multiple period models.

Multiple period model

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Multi Objective Programming Goal Programming

Fig. 4. Technique-oriented classication.

N. Aissaoui et al. / Computers & Operations Research 34 (2007) 3516 3540

minimum and/or maximum number of suppliers selected,

3.2.4. Alternative models

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N. Aissaoui et al. / Computers & Operations Research 34 (2007) 3516 3540

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4. Purchasing for services

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6. Conclusion and suggestions for future research

Weber et al. [112]

Buffa and Jackson

Karpak et al. [126]

Current and Weber

Anthony and Buffa

Without inventory management

With inventory management

Without inventory management

Bender et al. [122],

Pirkul and Aras

With inventory management

N. Aissaoui et al. / Computers & Operations Research 34 (2007) 3516 3540

N. Aissaoui et al. / Computers & Operations Research 34 (2007) 3516 3540

N. Aissaoui et al. / Computers & Operations Research 34 (2007) 3516 3540

N. Aissaoui et al. / Computers & Operations Research 34 (2007) 3516 3540

N. Aissaoui et al. / Computers & Operations Research 34 (2007) 3516 3540

Hanson W, Martin RK. Optimal bundle pricing. Management Science 1990;36:15574.

N. Aissaoui et al. / Computers & Operations Research 34 (2007) 3516 3540

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