An insight into centralised sourcing strategy for enhancing performance and sustainability of multi-tier supply network

Abstract

In a multi-tier supply network, sourcing strategy, consisting of supplier selection (SS) and order quantity allocation (OQA) to selected supplier(s), is a critical and challenging task for practitioners. Every player, in every tier of sourcing network, attempts to select quality conscious suppliers and optimise its own inventory cost per unit time for OQA. However, this may results in sub-optimal solution(s) for overall multi-tier supply network. Considering centralised sourcing strategy for SS and OQA may provide global best solution and sustainable supply network. This paper attempts to quantitatively illustrate inventory cost saving for coordinated centralised sourcing strategy for all tiers compared to independent decentralised sourcing strategy at individual tier in the supply network. Suitable mathematical models (single and multi-tier) and corresponding solution framework is used to determine local optima and global best solution for a comparative analysis. A real life electric goods manufacturing industry case study is used to demonstrate significant cost advantage for a centralised as compared to decentralised sourcing strategy. Sensitivity analysis with varied unit material price is also illustrated in this study.