Partner Selection in Supplier-Buyer Relationship with Integration of Leadtime Decisions under Demand Uncertainty Situation

Yosi A. Hidayat
Bandung Institute of Technology, Indonesia

Katsuhiko Takahashi
Hiroshima University, Japan

Katsumi Morikawa
Hiroshima University, Japan

Kunihiro Hamada
Hiroshima University, Japan

We developed a procurement decision model, which takes into account partner selection and optimal order quantity with the integration of a planned production leadtime operational decision. Leadtime is taken into account in time and cost performance to achieve on-time delivery of a supply chain (SC) system. We contrast the three following original equipment manufacturer (OEM) conditions, (1) longer leadtime to the buyer but at a lower cost for the supplier, so the buyer has to add crashing cost to reduce the leadtime; (2) less leadtime to the buyer but at a higher cost for the supplier; (3) shorter leadtime to the buyer by adding crashing cost to reduce the inventory cost. Taking into consideration the impact of demand uncertainty directly to the buyers, we focus on simultaneous procedures in achieving an optimal solution. Our model considers an objective function consisting of operational costs and lead time decision under integrated supply chain entities (suppliers, sub-assembly manufacturers (OEMs), and buyers). Based on our numerical results, by trading-off inventory cost and leadtime crashing cost, the best possible combinations of partners in fulfilling demand from the market are B1-A2-S2 and B2-A1-S3. We found that these two combinations give $141,102.95 total profit per year to the SC system. We proposed appropriate strategies that could be applied at OEM by considering order arrival timing and leadtime.

Download Full Paper